Profit (accounting)
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Profit, in accounting, is an
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
distributed to the owner in a profitable
market production In a general sense, market production refers to the production of a product or service which is intended for sale at a money-price in a market. The product or service in principle has to be tradable for money. However, in national accounts the te ...
process ( business). Profit is a measure of
profitability In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs. It i ...
which is the owner's major interest in the income-formation process of market production. There are several profit measures in common use. Income formation in market production is always a balance between income generation and
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes ec ...
. The income generated is always distributed to the stakeholders of production as
economic value In economics, economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured through units of currency, and the interpretation is therefore "what is the maximum amount of money a speci ...
within the review period. The profit is the share of income formation the owner is able to keep to themselves in the income distribution process. Profit is one of the major sources of economic
well-being Well-being, or wellbeing, also known as wellness, prudential value or quality of life, refers to what is intrinsically valuable relative ''to'' someone. So the well-being of a person is what is ultimately good ''for'' this person, what is in th ...
because it means incomes and opportunities to develop production. The words "income", "profit" and "earnings" are synonyms in this context.


Other terms


See also

* Gross income *
Net profit In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, ...
*
Profitability index Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amo ...
*
Rate of return In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment, such as interest payments, coupons, cas ...
*
Return on assets The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue. ROA can be computed as below: :\mathrm = \frac This number tells you what the company can do with what it has, ''i.e.'' how many doll ...
*
Return on equity The return on equity (ROE) is a measure of the profitability of a business in relation to the equity. Because shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can also be thought of as a return on ''a ...
* Rate of profit *
Profit model The profit model is the linear, deterministic algebraic model used implicitly by most cost accountants. Starting with, profit equals sales minus costs, it provides a structure for modeling cost elements such as materials, losses, multi-products, ...
* Profit motive


Footnotes


References

* * * * * * * * * * * * * *


Further reading and external links

* * *Moroney, J. R. (1967) Cobb-Douglass production functions and returns to scale in US manufacturing industry, ''Western Economic Journal'', vol 6, no 1, December 1967, pp 39–51. *Pearl, D. and Enos, J. (1975) Engineering production functions and technological progress, ''The Journal of Industrial Economics'', vol 24, September 1975, pp 55–72. *Robinson, J. (1953) The production function and the theory of capital, ''Review of Economic Studies'', vol XXI, 1953, pp. 81–106 * Anwar Shaikh,
Laws of Production and Laws of Algebra: The Humbug Production Function
, in The Review of Economics and Statistics, Volume 56(1), February 1974, p. 115-120. * Anwar Shaikh,
Laws of Production and Laws of Algebra—Humbug II
, in Growth, Profits and Property ed. by Edward J. Nell. Cambridge, Cambridge University Press, 1980. * *Shephard, R (1970) ''Theory of cost and production functions'', Princeton University Press, Princeton NJ. *Thompson, A. (1981) ''Economics of the firm, Theory and practice'', 3rd edition, Prentice Hall, Englewood Cliffs. *Elmer G. Wiens
Production Functions
- Models of the Cobb-Douglas, C.E.S., Trans-Log, and Diewert Production Functions.
Profit and Loss
Ludwig von Mises Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
(1951)
Measuring the Long-Run Profitability of the Firm
Salmi and Virtanen (1997) {{Library resources box, by=no, onlinebooks=no, others=no, about=yes, label=Profit (accounting)