This cost is known as the opportunity cost. For example if a farmer decides to grow rice instead of wheat then his opportunity cost will be the cost of wheat which he has given up to grow rice that year. Implicit cost, is the opposite of explicit cost i.e., it includes all the costs that the business could have earned on its asset but did not because instead of renting it, it was used for the business’ own use. This cost is not included in the P&L or Balance sheet. Thus, Accounting cost = explicit cost Opportunity cost/ economic cost= implicit cost + explicit cost.
Implicit costs are costs that have occurred but are not initially reported as costs, such as the opportunity cost of a firm using its own resources (Averkamp, n.d.). Therefore, explicit and implicit costs differ. For example, if I were to open up my own restaurant. The explicit costs would be the rent, set-up cost, supplies, wages etc. The implicit costs could be the wages and benefits (company car, health insurance etc.)
ECONOMIES OF SCALE In microeconomics, economies of scale refers to the cost advantages which an enterprise obtains due to size, output or scale of operations , with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.Often operational efficiency is also greater with increasing scale, leading to lower variable cost. Economies of scale applies to a wide variety of organizational and business situations and at various levels of an enterprise, such as a business or manufacturing unit, plant or an entire enterprise. For example, a large manufacturing facility is expected to have a lower cost per unit of output than a smaller facility, when all other factors are equal, while
Accrual accounting and Cash flow accounting are critical factors which contribute to judgments and decision-makings that lead to a successful business. It is debatable whether accrual accounting is preferred to cash flow accounting, while there are some financial economists are in favor of using cash flow basic to report. This chapter will first give a foundation of accrual and cash flow accounting, then discuss the advantages as well as drawbacks of both methods and give the conclusion which type of accounting is suitable to record. Accrual accounting is an accounting that revenues are recognized when sales have been made and expenses are recorded when they are incurred, even the cash receipt from the revenue or the cash payment related to
The operating profit margin refers to the ratio that used to determine whether or not the business operating by the company is able to earn at a reasonable profit. The higher the ratio, the bigger amount of the money that generated by the company from it’s business to cover the costs which including fixed as well as variable. For the operating profit margin of the company, there is a slightly increase from 99.51% in 2014 to 99.69% in 2015. This shows that Nestle (Malaysia) Berhad had the bigger amount of money after deducting the costs compared to previous
Actual income statements show what actually happened to revenues, costs, and profits during a period according to the GAAP principles. There are also pro forma and non-GAAP income statements. Pro forma means that the income statement is a projection. The income statement is divided by three parts, at the top line it has the revenues or sales, at the middle line, it has the costs and expenses and at the bottom line it has the profits or loses. When someone is looking at any income statement it’s essential to take a look to the footnotes because in there you can see how the accountants arrived to the totals.
The business performance is evaluated by measuring the profit or loss incurred by the business. Profit is calculated by subtracting the total expenses from the total revenue made by the business. Revenue is the amount of finance generated by the business from its’ normal activities. On the other hand, expenses are costs that the business incurs in its’ operations of gaining revenue. The income statement is connected to the balance sheet in that the net profit calculated at the end of the statement is used in the preparation of the statement of financial
Along these lines, if money is spent on a thing which will be utilized as a part of business for a long time, it won't be legitimate to charge the amount from the revenue of the year in which the thing is gained. Just a part of the amount is appeared as expense in the year of purchase and the rest of the adjustment is appeared as an asset. Accrual Concept: - The importance of accrual is something that become due particularly an amount of cash that is yet to be paid or gotten toward the finish of the accounting period. It implies that revenue is perceived when they wind up plainly receivable. In spite of the fact that money is gotten or not gotten and the revenue are perceived when they end up plainly payable however money is paid or not paid.
Making the best use of Our Corporate Strengths & Qualities: Some of our contributions are financial in nature, but we also aim to go beyond this by making full use of the resources built up through our business activities, such as our expertise & our facilities, to carry out sustainable activities. Financial & Internal process Objectives Revenue Growth: Increasing revenue is the most basic and fundamental financial objective of any business. Revenue growth comes from an emphasis on sales and marketing activities, and is solely concerned with increasing top line earnings before expenses. Profit Margins: Profit objectives are a bit more sophisticated than revenue growth goals. Any money left over from sales revenue after all expenses have been pain is considered profit.
2.0 Introduction Accounting techniques provide useful tools for assessing the performance and ascertaining the profitability of business operations. ‘Profit’ is one of the simplistic measures of performance. Profit is the difference between revenues and costs. Revenues usually come from sales and other income generating activities of the business establishment. Cost on the hand includes all expenditures incurred in the course of running the business.