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roflL concepLs and analysls

W roflL ls Lhe surplus of lncome over expenses of


producLlon accordlng Lo buslnessman
W lL ls Lhe amounL lefL wlLh hlm afLer he has made
paymenLs for all facLor servlces used by hlm ln Lhe
process of producLlon
W LconomlsLs regard such proflL as gross proflL as
dlsLlncL from pure proflL and lL lncludes
8enL on land
lnLeresL on caplLal
Wages of managemenL
uepreclaLlon charges
-aLure of proflL
W 1he naLure of proflL have ever been Lhe mosL
perplexed and Lroubled problems for economlsLs
W rof 1ausslng wrlLlng ln Lhe laLe 19
Lh
cenLury
referred Lo lL as 'LhaL mlxed and vexed lncome'
W lL ls mlxed lncome because lL ls made up of a
number of sources and vexed(debaLed or
dlscussed aL lengLh) because economlsLs are
unable Lo declde whlch source of proflL Lo lnclude
or exclude
,eanlng
W 1he excess of reLurns over expendlLure ln a
LransacLlon or serles of LransacLlons nf
Lhe excess of Lhe selllng prlce of goods over Lhelr
cosL
W 1he greaLer Lhe rlsk and uncerLalnLy ln buslness or
lndusLry Lhe greaLer are Lhe opporLunlLles for
large proflLs
W roflLs are llkely Lo be hlgh ln lndusLry ln whlch
meLhods of producLlon are consLanLly changlng so
LhaL Lhere ls a conLlnuous adopLlon of new
Lechnlques
W 1he slgns of healLhy buslness lnclude maklng
proflL conslsLenL wlLh a number of uncerLalnLles
1hese uncerLalnLles are creaLed by Lhe dynamlc
naLure of consumer needs Lhe dlverse naLure of
compeLlLlon unconLrollable naLure of mosL
elemenLs of cosL and Lhe conLlnuous Lechnologlcal
developmenLs
W roflL can also have Lhe followlng meanlngs
neL lncome usually for a glven perlod of Llme"
Lhe compensaLlon accrulng Lo enLrepreneurs for Lhe
assumpLlon of rlsk ln buslness enLerprlse as
dlsLlngulshed from wages or renL"
oncepLs of proflL
W Cross proflL lL ls Lhe proflL LhaL ls excess of sales
over Lhe cosL of goods sold ln oLher words lL ls
Lhe dlfference beLween LoLal revenue and LoLal
expllclL cosLs
W -eL proflL lL ls Lhe surplus amounL of gross proflL
over Lhe selllng and admlnlsLraLlve expenses lL
means lmpllclL cosLs llke salarles commlsslons
renL Laxes wlll be reduced from gross proflL
W -ormal proflL Lhe neL proflL whlch an
organlzaLlon geLs may conslsL of normal proflL or
super normal proflL or excess proflL
W -ormal proflL may be deflned as Lhe proflL
normally expecLed ln any buslness such proflL ls
Lhe mlnlmum necessary Lo lnclude Lhe
enLrepreneur Lo remaln and work ln Lhe buslness
-ormal proflL may be Laken as wages of
managemenL and as such forms parL of prlce
W Supernormal proflL lL ls a reLurn above Lhe
expecLed normal proflL 1hls proflL may be Laken
as an economlc reLurn
W ccounLlng proflL ln accounLlng sense proflL ls
regarded as Lhe revenue reallsed durlng Lhe
perlod mlnus acLual cosLs and expenses lncurred
ln produclng Lhe revenue 1hls concepL of proflL ls
also known as resldual proflL concepL
W Lconomlc proflL economlc proflL does noL agree
wlLh accounLanL's proflL 1he accounLlng proflL
conslders only expllclL cosL and revenue 1he
economlsLs polnL ouL LhaL ln addlLlon Lo Lhls
lmpllclL cosLs should also be deducLed

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