Paper profit

One of the most difficult and fundamental questions of accounting is a matter of determining the financial results.For its solution were separated concepts such as "economic" and "accounting" profit.What is the difference between these concepts?Accounting profit - a profit calculated according to the regulations of accounting.That it is stated in the profit and loss account.It represents the difference between recognized in the reporting period, revenues and expenditures (costs).Accounting profit - financial result is determined in the reporting period on the basis of accounting for all kinds of business operations and evaluation of all balance sheet items.There are various methods of calculating profit organization, but almost all of them are united by the use of the historical cost (cost of acquisition) and accrual basis, when assessing all costs.

Accounting profit is traditionally based on the following concepts:

- capital preservation and maintenance of well-being;

- capital increase or effectiveness.

In the first concept income (profit or loss) is a growth equity received for a specific period of time.Profit is seen as a result of improving the welfare of the organization.This concept is based on the changes in liabilities (sources of capital) and assets (funds).The income of the company is recognized only in the case of commitments to reduce or increase the assets.Accounting profit is regarded as being an increase in the company's own economic resources and loss - their reduction.

In the second concept of the enterprise profit is the difference between revenues and expenditures, and measure performance.Accounting profit in this case is the result of proper diversity resulting revenues and costs incurred by periods.Under this approach, income and expenses relating to future periods is recognized as an asset or a liability regardless of whether it is a real future outflow or inflow of economic resources.Under this system, the asset is treated costs, turning into the costs and liabilities - income, which subsequently become values.At its core, this approach is based on the concept of double entry used in accounting, which is determined by a dual financial result.He was treated on the one hand, as the build-up of equity (balance presents a statistical model), on the other hand, as the difference between revenues and expenditures (representing the balance of the financial model).

Accounting profit as an indicator of the financial result has a number of drawbacks:

- there is clear and unambiguous wording of this concept;

- with different approaches to the definition of income and expenses, some earnings are not comparable;

- inflation component often limits the comparability of data on profits for a few periods.

reflected in the accounting records, the profit does not give a correct assessment of the augmentation of the capital or embezzlement during the reporting period, as these statements are not fully reflect the economic costs incurred to attract certain types of resources.

desire for accurate assessment of the effectiveness of the company's capital led to the use in modern practice such thing as economic profit.Under this term is usually understood increase in the economic value of the organization.Economic profit is most often defined as the difference between return on capital and its weighted average cost multiplied by the amount of capital invested.

economic and accounting profit differs in that the second exceeds the first by the cost of unused capacity.That is why the economic profit is the main criterion for determining the efficiency of enterprise resources.