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When is one classed as profitable?


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Old 02-01-2017, 12:13
5hane
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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?
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Old 02-01-2017, 12:35
gomezz
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The former and I would have said only if the running costs includes interest paid on the capital borrowed to buy the stock.
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Old 02-01-2017, 12:40
DJW13
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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?
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.
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Old 02-01-2017, 12:56
Keefy-boy
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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?
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.
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Old 02-01-2017, 13:09
5hane
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The former and I would have said only if the running costs includes interest paid on the capital borrowed to buy the stock.
Thanks. Nothings borrowed so far.
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Old 02-01-2017, 13:11
5hane
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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.
Thank you. Currently looking up "Book Profit".
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Old 02-01-2017, 13:14
5hane
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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.
Thanks. My heads spinning so will reread your reply a few times until something clicks.
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Old 02-01-2017, 13:47
TUTV Viewer
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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?
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.
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Old 02-01-2017, 15:42
swingaleg
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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
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Old 02-01-2017, 16:09
5hane
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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.
Definitely not reached the VAT threshold yet. Yes considering a course ty
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Old 02-01-2017, 16:34
5hane
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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
I created a spreadsheet formula where by I input the item cost price to me and my chosen retail price. The formula takes into account various things like the free delivery I offer / transaction fees etc etc, and I end up with the profit per item

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
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Old 02-01-2017, 16:45
Eagle9a
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Definitely not reached the VAT threshold yet. Yes considering a course ty
Do the course asap, in business you need to know the difference between gross and net profit....you also need to appreciate what you your balance sheet is and what your p&l account means.

Historical reference which will prove invaluable......look at the Polly Peck accounts for the 3 years prior to dissolution
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Old 02-01-2017, 16:51
swingaleg
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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"
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
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Old 02-01-2017, 17:10
Eagle9a
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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
Swing to be fair, you can probably do that in your head but to a newbie knowing what their assets are against what might be coming is a little daunting - hence, even a mental balance is useful. Also if you dont know your gross/net profit then I suspect doom awaits.

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
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Old 02-01-2017, 17:12
Maxatoria
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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.
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Old 02-01-2017, 17:16
tealady
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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"
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.
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Old 02-01-2017, 17:27
Eagle9a
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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.
Where are you putting employees on that side of the equation?
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Old 02-01-2017, 17:45
tealady
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Where are you putting employees on that side of the equation?
Not aware of a method to value them.
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Old 02-01-2017, 17:52
Maxatoria
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Not aware of a method to value them.
They're a bit of both as they cost to 'run' in paying wages/taxes/ni but also an asset as they take the money from the public and so long as the cost per hour is being met by the money coming in then all is good.
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Old 02-01-2017, 17:58
Eagle9a
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Not aware of a method to value them.
I assume that is a joke
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.
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Old 02-01-2017, 18:04
Eagle9a
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Not aware of a method to value them.
Assume you worked in finance rather than HR
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Old 02-01-2017, 18:18
tealady
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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.
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Old 02-01-2017, 18:41
Eagle9a
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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.
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
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Old 02-01-2017, 18:54
tealady
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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
I'm not really sure where you are going with all this.

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.
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Old 02-01-2017, 19:01
bspace
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On a balance sheet employees come under Liabilities: Wages payable etc
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