What is Accounting Profit - 1054 Words

Based on my understanding, accounting profit is a measure of the profit or loss of the Company. It’s simply, total income minus total cost. I agree that accounting profit provides a good starting point to evaluate a company’s performance during a particular period. Many people tend to assume a company is doing well if it is profitable and invest in it as long as income statement shows net profit without considering other indicators such as accounting ratios and cash flows. However, I am unsure how reliable it is in indicating a company’s true profitability. Accounting profit figure may not be comparable between companies due to the subjectivity involved in management estimates and accounting policies. For example, amortisation, valuation and fair value adjustments are subjective. Additionally, creative accounting may also cause profits to be managed and inflated. For an example, Starbucks avoid paying tax in the UK for 3 years. Accounting profit also do not take into consideration all cost, such as opportunity cost of cost of equity. A company with high equity may report a higher accounting profit than a similar company with higher debt. Therefore, I highly doubt if accounting profit can be considered as a measure of true profit. Part 2 Accounting in Context (AIC) module cleared my doubts I had in Part 1 of this essay. AIC gave me a clearer picture of profit and accounting as a whole. Profit is the outcome of a particular accounting rule and not just aShow MoreRelatedâ€Å"The accounting profit figure is simply a measure of the true profit of an organisation.† Discuss.940 Words   |  4 Pagesâ€Å"The accounting profit figure is simply a measure of the true profit of an organisation.† Discuss. In order to assess whether the accounting profit is a measure of the true profit it must first be shown that there is such a thing as true profit. If we decide there is, we then need to know what it is exactly, in order to assess the extent to which the accounting profit reflects this true profit figure. Before studying this module I believed that the true profit was essentially the accountingRead MoreCommercial Accounting and Generally Accepted Accounting Principles649 Words   |  3 PagesCommercial Accounting and General Accepted Accounting Principles: Commercial accounting is an accounting principle that is based on profit and loss, which is also known as profit accounting. One of the major aspects of this accounting principle is that the reporting for an organization is directed to its investors. Through the principles of commercial accounting, tax cases judges generally seek to establish whether the profits were computed based on the ordinary commercial principles as the firstRead MoreThe Different Roles Of The Accounting Profession1305 Words   |  6 PagesThe Different Roles of the Accounting Profession Module by: Link-Systems International, Inc.. E-mail the author Summary: Demo/Sample Learning Object in Accounting Note: You are viewing an old style version of this document. The new style version is available here. Links [hide links] Supplemental links Weakly related linkThe Salvation Army Weakly related linkAmazon.com Weakly related linkGoogle Weakly related linkTwitter Weakly related linkVerizonRead MoreThe Difference between Economic Profit and Accounting Profit994 Words   |  4 PagesEconomic Profit and Accounting Profit When it comes to business decisions, there are many ways to analysis the financial status of a firm. What guidelines determine profit margin? Who uses these guidelines? How is profit used to analysis a firm and its business decisions? This paper will discuss two terms that are used to define profit: accounting profit and economic profit. The first term is called accounting profit which uses the equa-tion. The second term for profit is economic profit. EconomicRead MoreCash Accounting : A Simple System Essay952 Words   |  4 PagesCash accounting Cash accounting tracks the actual money coming in and out of your business. In cash accounting, if you get an invoice for something, you don t record the cost in your books until you ve paid the invoice. Similarly, when you send an invoice to a customer, you don t record the sale in your books until you receive the money from the customer. For example, if you send an invoice on Tuesday, and don t receive the payment in your account until Thursday, you record the income againstRead MoreHigh School Finance Teacher1331 Words   |  6 PagesCash Basis Accounting Alicia Wiley Grantham University Abstract In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a â€Å"prepaidRead MoreAcc 201 Project 1 Bank Memo1225 Words   |  5 Pagesat the store; and what could be done to make all natural products that would not cause any more harm. What started as a home-based idea soon turned into a business after realizing that â€Å"Peyton† was not the only dog with highly severe allergic reactions; there was a high demand for quality hypo-allergenic dog treats. While we are still a fairly new company, the third quarter has generated high profits from the sale of our products. We believe that we will see an increase in profi t and as a result weRead MoreReasons For Working And Meeting Expectations Of The Not For Profit1397 Words   |  6 Pagesexpectations of the not-for-profit (NFP) organization. First and foremost, if wanting to be successful in any job position, health care managers, and executives regardless of the specific area within a health care organization they lead, must have a firm understanding of accounting and financial management, (Finkler, S.A., Ward, D.M. Calabrese, I.D. 2013). These are qualities I possess, and feel that those are one of the many criteria to succeed in a not-for-profit (NFP) organization. Also, I haveRead MoreCompare And Contrast Positive Accounting Theory1117 Words   |  5 PagesWhat is accounting theory? A coherent interrelated goal and a basic principle of the system used as a class of explanations of the phenomena that are expected to lead to consistent standards. It includes positive and normative theories (Deegan Samkin, 2013, p. 76). Compare positive accounting theory (PAT) and Normative accounting theory. PAT is that because the company is fundamentally about a contract that determines its business, the core driver of the company s success is efficiency. So positiveRead MoreThe Basic Concepts Upon Which Financial Accounting is Based Essay1381 Words   |  6 PagesThe Basic Concepts Upon Which Financial Accounting is Based Terms of Reference To prepare a short report, which will explain the basic concepts upon which financial, accounting is based. The need for accounting standards and why companies must comply with them. The Need for Accounting Standards In order for the Profit and Loss and Balance Sheets accounts to make sense to users who rely on them for their decision making purposes, there has to be consistency