Difference between Turnover & Profit
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Difference between Profit and Turnover
Accounting plays a major role in business growth and economic assessment in a business. Proper accounting also helps a business owner to make the easy decision making. By having proper accounting, you can decide on tax payments, you will know the actual asset of your business, it will also help you to think about the establishment.
Eg. Just imagine your company has two needs at one point in time. To buy Raw Materials, and to buy a vehicle for the delivery of goods. What you will decide, whether to buy Raw materials or a Vehicle or both. To decide on it, first, you should know the financial position of your company.
While talking about Account, we talk about two major terms, Turnover and Profit. Here in this article, we are going to discuss these two terms in detail.
What is Turnover
A Sales turnover of a company is the Organisation’s total amount of products or services sold over an accounting year. This is called turnover.
Generally, these terms are used to calculate Taxation. But Income Tax Act is dumb on the term Turnover. But As per Section 2 (91) of Indian Companies Act, 2017 "Turnover" means the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year.
How to calculate the Turnover
Total income for a company (excluding outstandings) and not including GST amount collected is called Turnover
Eg. A Company sold 1000 cola cans in the last financial year. The cost of One cola can is Rs.50. The company usually gives credit for 90 days. So the
What is Profit
Profit describes the financial benefit realized when the revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.
Types of profit
There are totally three types of profits Gross Profit, Operating Profit, net profit. We shall see each term in detail.
Gross Profit: Gross profit is normally Total sales minus Cost of Goods sold. For example, A company sold 100 cars in a financial year for a price of 5,00,000/- per car So the total sales are Rs.5,00,00,000/- and the total cost of manufacturing is Rs,2,00,00,000/-. SO the GROSS Profit here is Rs.3,00,00,000/-.
Operating Profit: Operating profit is normally calculated after deducting the operation cost. That is to say, Gross Profit minus Operating cost is what is called Operating Profit. For example, a company’s annual operating cost ie to say, salary, stationery, telephone bills, etc come around Rs.75,00,000/-. The Company's Gross profit is Rs.3,00,00,000/-. So here the Operating Profit is Rs.2,25,00,000/-
Net Profit: So finally after deriving the Operation Profit, taxation to be detected, so the Operating Profit minus Gross Profit is what is called as Net Profit. For Example, the Companies Operating Profit is Rs.2,25,00,000/- and the income tax that needs to be paid is Rs. 67,50,000/-. So the Net Profit is Rs. 1,57,50,000/-
What is the difference between Turnover and Profit?
In every organization, both Profit and Turnover are calculated to know the growth of the organization. But turnover measures them before taking out major costs. Profit is residual earnings after costs.
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