What are some examples of terminology of business?

Answer 1

Terminology of business:

Practically, all companies calculate their net income the same way.

All business profit and loss accounts are structured like this:

Turnover

--Less variable costs

= Gross profit

--Less fixed costs

= Net income

This applies with the qualification that e.g. some consultancies do not have variable costs - only fixed costs.

Turnover

Turnover is an accounts term covering a company's total proceeds from sale. The accounting treatment of this amount must be less VAT, as the VAT which a company charges on its sales must be pay to Told & Skat and thus does not constitute an income.

Variable costs

Such costs are also referred to as direct costs or - in a trading company - costs of sales. Variable costs are costs varying relative to sales. Some examples:

• A baker's need for flour and yeast varies relative to how much bread s/he sells
• A service station's purchase of petrol varies relative to how much petrol is sold
• A building contractor's manpower requirement varies relative to how many bridges s/he has secured a contract for
• Typically, an accountant or consultant has no variable costs

Gross profit

Also referred to as contribution margin. Gross profit is the turnover less variable costs, but including other costs.

Often, variable costs are an almost stable percentage of the turnover. Thus, the gross profit can be determined as a similar stable percentage of the turnover.

Gross profit varies depending on type of industry. The contribution margin may be 65% for a restaurant, while it could be 20% for a kiosk.

Fixed costs

Also referred to indirect costs or overhead costs. Such costs are not as fixed as the term may imply - they often vary. This, however, does not make them variable. Variable costs vary relative to the turnover, while fixed costs can vary relative to all other parameters. E.g. rent is a fixed cost.

Net income

Also referred to as profit/loss or proprietor's salary. Net income is the proceeds a proprietor makes from running his/her business. Net income does not always exist in terms of cash. It can be partly or fully tied-up in stocks or balance due from customers.