The key goal of absolutely any structure of a commercial type is to find its place in the market, gaining trust and recognition of the consumer. These factors serve to maximize profits, which directly depends on gross income. And what is gross income? How to count it? What is the mechanism of its formation? This article describes in detail this, as well as the sources of gross income, the principles of its distribution and planning, and, of course, the relationship with such a category as profit.
The concept of gross income
What is gross income? This term should be understood as the total income of one structure or another from absolutely any type of entrepreneurial activity and related operations before paying taxes from it, which are directly included in the price of the product. These taxes include VAT, excise tax, and customs duties and duties. Thus, the gross income of industrial enterprises is calculated on the basis of gross income from product sales.
The gross income of any structure serves as its financial base, which in turn organizes the solution of very interesting problems. So, most of the named income of a particular organization serves as a source of reimbursement of absolutely all of its costs in the current time, directly related to the implementation of entrepreneurial activity. The solution to this problem provides, first of all, self-sufficiency in relation to the current economic activity of the structure.
What are the other tasks?
Having determined what gross income is, it is necessary to find out its functions. In addition to the above paragraph, the tasks to be solved with its help include the following:
- A significant share of the gross income of the structure is a source that allows you to competently organize the payment of tax payments. This ensures the formation of budgetary funds at both the state and local levels. It is thanks to this that the financial obligations of the structure to the state are fully implemented.
- As it turned out, the company’s named income is characterized by two key indicators: its level and amount. And in addition, the gross income and revenue of the enterprise are divided into some parts. So, the share of the gross income of the structure serves as a source of creating its profit. It is precisely due to this that development funds are formed in the sphere of production, incentives for employees financially, payments for social needs, a reserve fund, and so on. The performance of this function fully organizes self-financing of the development of the structure in the future.
Indicator calculation
What is gross income, and how to calculate it? As we have already found out, gross income is nothing but the amount of money that an entrepreneur receives as a result of the sale of his product. It directly depends on the quantitative characteristics of the goods or services sold, as well as the price of them. How to calculate this indicator? The process of creating gross income for one type of product is represented by the following formula:
VD = product sales price * product quantity .
It is important to note that the degree of income from the sale of a product can be expressed through a rate of return:
In (dr.f) = gross income from the sale of the product / volume of sales of the product in the current period .
Often, another indicator, called net profit, is additionally calculated. Through it, you can get gross income:
gross income = net profit + total amount of taxes, fines and penalties.
Gross Income Generation Process
It will be advisable to consider the entire algorithm for the formation of the indicator considered in the article:
- The structure that produces this or that product introduces it to the market of goods and services.
- This product is gradually starting to enjoy more and more consumer demand. Thus, the company is firmly entrenched in the market.
- Consumers buy goods or use one or another service.
- The structure receives cash payments.
Analysis
The last paragraph deals with the funds entering the treasury of the company through 1-3 operations. They constitute the gross income of the company. But it should be noted that the money that comes into the hands of the structure at the expense of the products sold makes up only part of this income, because it is formed, as we have already said, thanks to all possible revenues.
Among them may be insurance proceeds, funds provided as assistance to the company from individuals or legal entities, bank interest, values accepted by the structure for storage in accordance with a previous agreement, cash received as a result of operations with securities (stocks, bonds ) and so on. We will consider this issue in detail in the next chapter.
The composition of gross income
Thus, the following items are among the components of gross income:
- Cash received as a result of litigation (in case of a win).
- Penalties and fines paid to the structure by a certain legal entity (less commonly, by a physical person).
- Values accepted by the enterprise for storage in accordance with the concluded agreement.
- The share of funds from the insurance reserve of the company (as a rule, they are returned or used not for their intended purpose).
- Help the company in financial terms.
- Cash received as a result of various kinds of interactions. A vivid example of this is the dividends or interest on debt obligations.
- Cash received from the sale of securities.
- Bank interest.
- Insurance proceeds.
Factors affecting the amount of VD
No one will argue that the gross income of the country and individual structures is primarily formed on the basis of consumer confidence. The higher the level of this trust, the more product a person will gain. However, other equally important factors are known that determine the value of gross income. Among them:
- Production factor. By it they understand the importance of directly the quality of the product and its price. In addition, the production capacity of the structure and the amount of the product created as a result have an equivalent effect on the final result.
- Sales factor. It involves ensuring quick shipment of goods, practical preparation of relevant documentation, strict adherence to the conditions specified in the contract, as well as competent organization of logistics operations in relation to sales. All this fully ensures the achievement of maximum indicators relative to the amount of gross income.
Other factors
It should be noted that there are also factors that the manufacturer is not able to influence. It would be advisable to include the following:
- Compliance with the terms of the transaction by the buyer (or non-compliance with them).
- The ability to timely pay for the purchase by the client.
- Weather.
- The absence of some shortcomings in relation to transport support (or their presence).
- Delays in the process of loading or unloading goods.
In conclusion, it should be noted that the amount of gross income mainly depends on the price and quantity of a particular product that was sold. Also, this amount is not badly affected by the terms of trade, product features (usually high-quality), as well as the seller’s capabilities and customer confidence.