A Profitable Business Research Paper Example | Topics and Well Written Essays - 1250 words

A Profitable Business - Research Paper Example After adding up these costs, the value of unsold goods (closing stock) is deducted to give the cost of goods sold. When the COGS is deducted from total revenues from sales, the gross profit is achieved. Gross profit is also known as operating profit because it is a measure of the manufacturing operations of the business. Net profit is calculated after deducting general, selling and administrative expenses from the gross profit. These expenses include items like electricity expenses, depreciation, salaries of office staff, and other expenses related to the day to day running of the business (Pride, Hughes, and Kapoor 513). Sometimes, other income such as interest on loans, etc. is added to the gross profit. The net profit is a measure of the profitability of the business as it represents the amount that would be shared among the shareholders. For this reason, investors use net profit to determine the earnings per share (EPS) by dividing the net profit by the number of outstanding shar es. This tells investors how much return each share of the business earns for shareholders. 2. Misconceptions about Revenues and Expenses A common misconception new business owners have about revenues is that they are the same as profit. Revenues measure what a business received by selling its products. Profit is calculated after deducting expenses from revenues. ... Secondly, when accounting for business operations, the amount of revenue and expenses reported may differ. Under the cash-based accounting method, revenues and expenditures are identified when cash is collected or paid. But under the accrual accounting system, revenues and expenditures are identified when the right to receive or duty to pay has been established. The cash may be received at a later time. New business owners also sometimes fail to distinguish expenses from costs. For accounting purposes, cost is usually used to mean the price of a long-term benefit such as a fixed asset. On the other hand, expenses such as electricity payments and office stationery are payments in the course of the normal running of the business. Some new business owners also hold a misconception that all expenses involve payment of cash. In some cases, such as depreciation expense, there may be no payment of cash. Depreciation and amortization expenses simply involve the spreading of a cost over the p eriod during which the benefits of the cost are realized by the business. 3. Business Management Software InFlow is one of the most popular inventory management software for small and medium-sized businesses. Launched in 2007, it allows for products to be organized into categories with picture and price identification. Furthermore, the system also allows items to be tracked at the aisle and bin level. It supports bar code scanning for efficient point of sale operations. Users can have real-time access to the updated data. The system also produces invoices, purchase orders and other documentation. Customized sales, profit and cost reports can also be produced. The company offers a free edition of the software that has a capacity of storing up to 100 products (InFlow, 2013). QuickBooks is