A few days ago
Homework help…?
Describe the importance of each of these accounting terms to a small business:
a.) Gross profit
b.) Operating income (earnings before interest and taxes)
c.) Net income available to owners
I’d like some feedback, I have answers, but they seem too short…
Top 1 Answers
A few days ago
Favorite Answer
A. Gross profit, or gross margin (same thing), is the difference between your net revenues (net sales) and cost of goods sold (the costs associated with the development of the products/services to be sold in order to generate revenue). In order for a small business to be successful, it must have an adequate gross profit that will cover all of its operating expenses (not to be confused with Cost of Goods Sold).
B. Operating Income is the difference between Gross Profit and Operating Expenses and is derived from the company’s main business. It’s generally used to compare the profitability between the small business and its competitor(s) or divisions within itself.
C. Net Income measures the amount of business earnings that will be divided (hence Dividends) among investors to the the business. Net Income (or Net Loss) signifies whether or not a business has operated successfully during its accounting period.
I hope this helps a little!
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