Chapter 5
The Effects and Reporting of Profit
In This Chapter
Getting a grip on what profit is and isn’t
Designing the income statement
Minding your p’s and q’s with revenue and expenses
Seeing the effect of profit on assets and liabilities
Business is profit-motivated. As I explain in The Fast Forward MBA in Finance (Wiley), profit stimulates innovation; it’s the reward for taking risks; it’s the return on capital invested in business; it’s compensation for hard work and long hours; it motivates efficiency; it weeds out products and services no longer in demand; it keeps pressure on companies to maintain their quality of customer service and products.
In short, the profit system delivers the highest standard of living in the world. Despite all this, it’s no secret that many in society have a deep-seated distrust toward our profit-motivated, free-enterprise, and open-market system — and not entirely without reason.
The job of accountants is to measure profit performance, not to pass ...
