Any commercial enterprise is aimed at occupying a certain niche in the market of goods and services and consumer recognition, since only in this case the entrepreneur will be able to make a profit that arises from the amount of gross income, and he, in turn, is one of key financial indicators business entity.
Definition of gross income
Gross income is the amount of funds in any equivalent that falls into the treasury of the producer, depending on the amount of purchased goods or accepted services by the consumer.
Let's imagine the following mechanism:
- the manufacturer launches a product or service on the market;
- products are recognized by the consumer and occupy their niche in the market;
- the buyer purchases the goods or receives the service;
- the entrepreneur receives money for the manufactured products.
The funds received represent the gross income of the enterprise. However, this formulation is rather crude, since this indicator includes not only those revenues that replenish the enterprise’s treasury at the expense of the consumer, but also a number of others.
Varieties
It is a mistake to believe that gross income is a concept inherent exclusively in commercial activities in the context of one particular enterprise. Just within the framework of one business entity it is easier to explain the essence of this concept as such.
After all, it is more difficult to make out “on the fingers”, which represents income in the macroeconomic context, within the framework of an entire state with its own mechanisms and fiscal services, foreign economic policy and income from export-import operations. Nevertheless, the concept of gross national income also takes place in economic theory.
Thus, we can conclude that the following varieties exist:
- in macroeconomic terms, gross national income;
- in the microeconomic aspect, gross income within the enterprise.
Gross national income
The definition of gross national income is to summarize the value of all final products of the state at the time of the reporting period, which is then intended for domestic consumption.
The cost of those products that are located on the territory of the state at the time of the reporting period, but are supposed to be further resold, has nothing to do with VD.
Depending on how much in monetary terms is gross income, it is possible to determine how healthy the state’s economy is as a whole. Do not forget about the indicators that are excluded in the calculation of state revenue:
- Turnovers inside former consumer goods
- financial transactions related to the circulation of securities;
- private transfers: gifts from relatives, private scholarships;
- social benefits: pensions, subsidies, benefits.
When calculating the indicator, inflationary and deflationary dynamics are taken into account.
The gross income of the enterprise
As mentioned earlier, gross income within one particular enterprise depends on how much the consumer trusts a particular producer and how much product he is willing to buy.
Net gross income depends on many factors that ultimately determine the final financial indicator:
- Production factor. Of great importance is the quality of the product, its price, in addition, the production capacities and the frequency of products in the period noted play an important role.
- Sales factor.How quickly and timely the shipment of goods is carried out, related documents are drawn up, contract terms are respected, how well the logistics of sales of products is compiled.
- Manufacturer-independent factors. How accurately does the buyer comply with the contract conditions, is he able to pay for the goods on time, are there any shortcomings in transport services, adverse weather conditions, or delays in transportation.
What includes the gross profitability of the enterprise
It is clear that the main niche of the company's profit is the main activity in the sale of goods and the provision of services, and in addition to it, also auxiliary income, which is also included in gross domestic income:
- any amounts won in court;
- penalties, fines, penalties paid in favor of the enterprise by absolutely any natural or legal person;
- any tangible assets transferred to the enterprise for storage in accordance with the concluded agreement;
- any amount from the insurance reserves of the enterprise - both returned and used according to its indirect purpose;
- charity addressed to the company, or irrevocable assistance;
- income received as a result of joint activities (this may be dividends, royalties, other interest on debt claims, both residents and non-residents);
- funds received as a result of the sale of securities;
- insurance income or bank interest payments.
The relationship between gross income and profit
Gross income and profit are rather closely interconnected and are interdependent concepts. Moreover, if the first represents the received funds as a result of commercial activity, taking into account all costs, then the second is the so-called net indicator.
This means that profit is calculated as the difference between gross income and all costs incurred by the company from its main or auxiliary activities. Thus, we see how profit depends on total profitability.
But how can gross income depend on profit? The fact is that the costs of enterprise A are the revenues of enterprise B. Thus, the greater the profit of enterprise A, the lower the gross income of enterprise B.
Calculation Method
Gross income is the primary indicator in determining the financial results of the enterprise for the reporting period, therefore, it depends directly on the price of products sold or services provided, as well as the quantity of goods sold and is calculated by the formula:
Amount of gross income = Price of products sold (services provided) * Number of products sold (services provided).
In addition, there is an indicator, which is called the level of profitability of the enterprise and is a coefficient that determines direct income as a percentage. The level of profitability is determined by the formula:
Profitability ratio = Gross income / Number of products sold (services provided) * 100%.
Gross income distribution
Gross income is the basis for the further distribution of the organization’s finances both within the framework of operating activities and beyond.
Thus, there are several areas in which there is a distribution of the amount of gross income of the enterprise:
- at the expense of the profitable amount, depreciation accruals of fixed assets of the enterprise are reimbursed;
- compulsory payments to the treasury, duties, fines, interest on credit lines and taxes;
- social payments and the basic salary of employees are carried out, stimulating deductions in favor of personnel;
- the company’s net profit fund is replenished.
It follows from this that due to the amount of gross income, any commercial enterprise can be called self-sustaining, since there is the opportunity to provide for yourself, make obligatory payments, and financing is also provided. deferred expenses for the further development of production.
Gross Income Planning
Each enterprise has its own goals and scope of economic planning (they range from a month to a year), since this process is simply necessary for successful entrepreneurship.
Therefore, at the beginning of the reporting period, certain indicators are set that are based on data from previous periods, and by the end of the period a comparison is made: how much the actual gross income differs from the planned one.
The targets are determined without value added tax and any other duties. Since any state allowances as such are not included in the equity of the enterprise and are transferred to the state treasury with each reporting period.
Also, revenues that are inconsistent in nature are not included in the planned gross income indicator: income from the withdrawal of fixed assets, sale of intangible assets not related to the operation of an enterprise, or sale of foreign exchange assets.
Currently, competent planning and correct pricing of goods is a direct road to the successful functioning of the enterprise in a competitive market. At the same time, one should not forget that it is necessary to plan the amount of income in such a way that this indicator is sufficient not only to cover costs and expenses of future periods, but also to receive net profit.
