|
||||||||
When is one classed as profitable? |
![]() |
|
|
|
Thread Tools | Search this Thread |
|
|
#1 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
When is one classed as profitable?
I apologise in advance for what is probably a stupid question, but this is doing my nut in.
In retail, is one in profit after earnings exceed the running costs of the business or after earnings exceed both the running costs of the business and the money spent on all of the stock? |
|
|
|
|
Please sign in or register to remove this advertisement.
|
|
|
#2 |
|
Forum Member
Join Date: Oct 2004
Location: Buckingham
Posts: 28,534
|
The former and I would have said only if the running costs includes interest paid on the capital borrowed to buy the stock.
|
|
|
|
|
|
#3 |
|
Forum Member
Join Date: Apr 2009
Location: South West
Posts: 3,278
|
Quote:
I apologise in advance for what is probably a stupid question, but this is doing my nut in.
In retail, is one in profit after earnings exceed the running costs of the business or after earnings exceed both the running costs of the business and the money spent on all of the stock? So don't go off and spend the book profit, as it may be that the stock will remain unsold, so the apparent profit could disappear if the stock is scrapped or sold off at a loss. |
|
|
|
|
|
#4 |
|
Forum Member
Join Date: Oct 2006
Location: Brighton, UK
Posts: 9,427
|
Quote:
I apologise in advance for what is probably a stupid question, but this is doing my nut in.
In retail, is one in profit after earnings exceed the running costs of the business or after earnings exceed both the running costs of the business and the money spent on all of the stock? Opening stock + purchases - closing stock To arrive at the net profit figure overheads and depreciation are also deducted from the sales. Writing down the cost of unsold stock reduces the paper profit figure and is an often used 'trick' to massage profit figures. |
|
|
|
|
|
#5 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
Quote:
The former and I would have said only if the running costs includes interest paid on the capital borrowed to buy the stock.
|
|
|
|
|
|
#6 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
Quote:
The profit for tax purposes will be after earnings exceed running costs. The presumption is that the business is continuing and that eventually all the stock will be sold.
So don't go off and spend the book profit, as it may be that the stock will remain unsold, so the apparent profit could disappear if the stock is scrapped or sold off at a loss. |
|
|
|
|
|
#7 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
Quote:
In calculating the cost of sales for the profit and loss for a period the value of the stock at the beginning (the opening stock) and the end | (the closing stock) needs to be known. The cost of sales is then
Opening stock + purchases - closing stock To arrive at the net profit figure overheads and depreciation are also deducted from the sales. Writing down the cost of unsold stock reduces the paper profit figure and is an often used 'trick' to massage profit figures. |
|
|
|
|
|
#8 |
|
Forum Member
Join Date: Aug 2004
Location: Oxford
Posts: 5,303
|
Quote:
I apologise in advance for what is probably a stupid question, but this is doing my nut in.
In retail, is one in profit after earnings exceed the running costs of the business or after earnings exceed both the running costs of the business and the money spent on all of the stock? Maybe speak to your local college about an AAT course too. |
|
|
|
|
|
#9 |
|
Forum Member
Join Date: Nov 2002
Posts: 76,804
|
If you are selling widgets and you buy them for £2 and sell them for £3 then it would go like this.............
In December you sold 100 widgets and sales were £300. You take off the cost of the widgets you sold during that period, ie £200 and your profit is £100 minus any allowable expenses if you bought another 200 widgets during the month and put them in stock it's irrelevant for 'profit and loss' which is only on the items you sold during the month If you are doing a Balance Sheet it would be different as the unsold stock would go on the Asset side of the balance |
|
|
|
|
|
#10 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
Quote:
Are you VAT registered? Time to speak to your accountant... HMRC are unlikely to accept "I was told on a general forum" as mitigation if you get it all wrong.
Maybe speak to your local college about an AAT course too. |
|
|
|
|
|
#11 |
|
Forum Member
Join Date: Jun 2007
Location: The sane side of the pond
Posts: 1,481
|
Quote:
If you are selling widgets and you buy them for £2 and sell them for £3 then it would go like this.............
In December you sold 100 widgets and sales were £300. You take off the cost of the widgets you sold during that period, ie £200 and your profit is £100 minus any allowable expenses if you bought another 200 widgets during the month and put them in stock it's irrelevant for 'profit and loss' which is only on the items you sold during the month If you are doing a Balance Sheet it would be different as the unsold stock would go on the Asset side of the balance So from what I gather here, the main profit will be whatever the sum total of the above profits are, minus business running costs. And the money sunk into stock is not part of the equation as it belongs to me. If I've got that bit right, then I now just need to get my head around what it means to have an"asset side of the balance" Thanks for everyones help so far
|
|
|
|
|
|
#12 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
Definitely not reached the VAT threshold yet. Yes considering a course ty
Historical reference which will prove invaluable......look at the Polly Peck accounts for the 3 years prior to dissolution |
|
|
|
|
|
#13 |
|
Forum Member
Join Date: Nov 2002
Posts: 76,804
|
Quote:
If I've got that bit right, then I now just need to get my head around what it means to have an"asset side of the balance"
it's only a requirement if you are a limited company and have to file accounts you have to do 'profit and loss' for tax purposes even if you're a small business |
|
|
|
|
|
#14 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
I've been running a small business for 20 years and have never done a balance sheet
it's only a requirement if you are a limited company and have to file accounts you have to do 'profit and loss' for tax purposes even if you're a small business eg I built a widget for £5.00 and sold it for £50...oh look £45 gross profit it only took me £75.00 in costs to sell the widget |
|
|
|
|
|
#15 |
|
Forum Member
Join Date: Apr 2011
Posts: 10,733
|
I seem to remember from many years ago the 'acid' test where basically if you decided to give up on that day and could clear all the stock for list price etc and sell every asset of the business etc would you have any cash in hand after settling all the bills etc.
Its always a hard thing in a running business as you have stock on hand, bills coming in, stock thats being sold, depreciation of fixed assets so really you have to pick a day and just say if I sold up today what would I get and have to pay up so I could walk away. |
|
|
|
|
|
#16 |
|
Forum Member
Join Date: Apr 2005
Location: colchester
Posts: 15,350
|
Quote:
If I've got that bit right, then I now just need to get my head around what it means to have an"asset side of the balance"
A balance sheet is a list of assets and liabilities Assets might be Property Vehicles Plant Machinery Debtors Stock Liabilities Creditors HMRC Bank overdraft Loans Total of Assets should equal Total of liabilities, but for a small business, you may well only have stock, bank overdraft and cumulative profits plus a couple of bills to pay. |
|
|
|
|
|
#17 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
Not sure if you really need one.
A balance sheet is a list of assets and liabilities Assets might be Property Vehicles Plant Machinery Debtors Stock Liabilities Creditors HMRC Bank overdraft Loans Total of Assets should equal Total of liabilities, but for a small business, you may well only have stock, bank overdraft and cumulative profits plus a couple of bills to pay. |
|
|
|
|
|
#18 |
|
Forum Member
Join Date: Apr 2005
Location: colchester
Posts: 15,350
|
Quote:
Where are you putting employees on that side of the equation?
|
|
|
|
|
|
#19 |
|
Forum Member
Join Date: Apr 2011
Posts: 10,733
|
Quote:
Not aware of a method to value them.
|
|
|
|
|
|
#20 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
Not aware of a method to value them.
is it possible (as of today) that one can make profit or loss without employees? As an aside, 100 employees at £5.00 ph = £500.00 so how in Gods name, even for a bookkeeper, can that not come into any equation. |
|
|
|
|
|
#21 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
Not aware of a method to value them.
|
|
|
|
|
|
#22 |
|
Forum Member
Join Date: Apr 2005
Location: colchester
Posts: 15,350
|
Employees are a revenue cost and can be part of the cost of sales or under administration.
No scope for including them on the balance sheet. What you may see here is payments due to HMRC or a pension body. |
|
|
|
|
|
#23 |
|
Forum Member
Join Date: Jul 2004
Location: Scarborough
Posts: 18,762
|
Quote:
Employees are a revenue cost and can be part of the cost of sales or under administration.
No scope for including them on the balance sheet. What you may see here is payments due to HMRC or a pension body. Time cost employees will always ALWAYS make a profit, net maybe a different question, and where do HMRC enter into this question |
|
|
|
|
|
#24 |
|
Forum Member
Join Date: Apr 2005
Location: colchester
Posts: 15,350
|
Quote:
Hello...when was the last time you worked?
Time cost employees will always ALWAYS make a profit, net maybe a different question, and where do HMRC enter into this question Originally, swingaleg mentioned "If you are doing a Balance Sheet it would be different as the unsold stock would go on the Asset side of the balance" so I gave a few examples of assets and liabilities, then you seemed to get tangled up with employees as assets. Presumably this was sort sort of conceptual idea relating to the benefit to the organisation. In accounting terms, they don't appear on the balance sheet as we no longer have slaves, but we hire people. The cost of hire appears in what is often referred to as profit and loss. Employee costs might appear in the balance sheet in respect of EE/ER NI and Tax owing to HMRC. |
|
|
|
|
|
#25 |
|
Forum Member
Join Date: Jul 2004
Posts: 10,776
|
On a balance sheet employees come under Liabilities: Wages payable etc
|
|
|
|
![]() |
|
|
All times are GMT. The time now is 09:30.


