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There is profit - there is no money: why does this happen in the business economy

There is profit - there is no money: why does this happen in the business economy

In commercial activity, the sale of some tangible and intangible goods (products/services) is always associated with obtaining profit. If there is profit, then it is logical to judge the availability of earned net money and the ability to pay off debts, at least. But this is not always the case.

If money is essentially a conditionally tangible asset (figures on the settlement account or cash in your pocket), expressed in units of account of a particular currency, then profit is just a calculated indicator obtained on the basis of writing off accounting data in its derivatives (revenue and cost). As a result, in fact, it is always possible to state the deviation of the real economic situation in the work of the organization with its reporting data on profits and losses.

This deviation is mainly due to the mechanism established by the accounting policy of the enterprise /organization for writing off the cost accumulated during the production period, which is directly involved in the calculation of profit.

Let's look at a simple example.

profit and money - difference and comparison in accounting

In production, we created a product within a month and spent 1 200 rubles on it.. After that, they sold it and received revenue of 1,000 rubles. It would seem that they worked at a loss, we are all closing, and creditors will not receive 200 rubles at the same time.

In fact, this is how it should be. And in this case, the profit/loss from such a sales transaction corresponds to the money that the organization actually received in the form of a net cache (money) (-) 200 rubles..

However, when calculating profit, the adopted accounting policy of the enterprise/ organization allows you to write off not all of its accumulated amount for the period to the cost price (i.e. keep part of it on other accounting accounts), but let's say 700 rubles.. I.e., according to the profit and loss statement, the enterprise has a profit of 300 rubles for the period., but it could not pay off with creditors on raw materials, energy, wages, etc., written off earlier in the cost of manufactured products in full and has a debt of 200 rubles.. Now, to resume the subsequent production cycle in the same volumes, the company will need another 200 rubles. For which it is likely to turn to the same creditors.

As a result, we have that the company / organization seems to have a profit, but it does not have money. This approach in accounting generates a constant need for finance in the pseudo-profitable operation of the business.

All this accounting mechanism is always based directly on the laws and accounting policies developed directly by the organization itself.

Therefore, for lenders, the basis of a real business assessment should always be balance sheet and necessarily based on its the real value, in order to adequately assess the volumes of hidden losses of previous periods sewn into it.

It is also necessary not to forget that in addition to the accounting mechanism for writing off costs, the system of monetary settlements can also be influenced by the increase in working capital organizations.

There is profit - there is no money: why does it happen in the business economy Somehow!

автор - Михаленко Р.
M R. Автор - kaktotak.by Specialization: financial and economic design - modeling of business, investment projects of the real sector, analysis and evaluation of efficiency, optimization of the management decision system.

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