Making a profit in a business is derived from several different areas . It can be a little complicated because just as in our personal lives , business is run on credit as well . Many companies sell their products to their customers on credit. Accountants
use an asset account called accounts receivable to record the total
amount owed to the company by its customers who have not yet paid the
balance in full . Most of the time , a business has not collected its receivables in
full by the end of the year , especially for credit sales that could be
concluded at the end of the accounting period.
The accounting records revenue and cost of goods sold for these sales in the year sales and products delivered to the customer is made. This is called accrual accounting , which records revenue when sales are made and records expenses when worked. In a credit sale , the asset accounts receivable is increased. When cash is received by the customer , the cash account is increased and accounts receivable is reduced.
The cost of sales is one of the major expenses of businesses that sell goods, products or services. Even a service involves expenses . It means exactly what it says it is the cost that the company pays for the products it sells to customers . A company makes its profit by selling its products at prices high enough to cover production costs , the costs of management of the company , interest on money you borrowed and income taxes , with the money left over for profit .
When the business acquires products , the cost of their place in what is called an active account inventory. The cost will be deducted from the cash account , or added to accounts payable liability account , depending on whether the company has paid with cash or credit.
The accounting records revenue and cost of goods sold for these sales in the year sales and products delivered to the customer is made. This is called accrual accounting , which records revenue when sales are made and records expenses when worked. In a credit sale , the asset accounts receivable is increased. When cash is received by the customer , the cash account is increased and accounts receivable is reduced.
The cost of sales is one of the major expenses of businesses that sell goods, products or services. Even a service involves expenses . It means exactly what it says it is the cost that the company pays for the products it sells to customers . A company makes its profit by selling its products at prices high enough to cover production costs , the costs of management of the company , interest on money you borrowed and income taxes , with the money left over for profit .
When the business acquires products , the cost of their place in what is called an active account inventory. The cost will be deducted from the cash account , or added to accounts payable liability account , depending on whether the company has paid with cash or credit.
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