Corporate Profit Definition
Corporate Profit, also called as ‘Profit after Tax, is basically the net income received from the business after deducting direct expenses (i.e., cost of materials, direct wages etc.), Indirect expenses (i.e., salary, rent expenses, professional charges, electricity expenses, other expenses etc.) and all the applicable taxes from the Total Income generated by the company (i.e., Revenue from operation, interest income, rent income, other income etc.) during the year.
‘Corporate Profit’ in simpler terms is the Profit after Tax of a company for a particular financial period or year. It is calculated for a period that can be a month, a quarter, half-yearly, or yearly depending upon the requirements. It shows the earning of the company over & above the expenditure incurred by the company during the given financial period. In case the earning of the company falls short of the total expenditure incurred during the period then, that amount is termed as Corporate Loss.
Structure of Corporate Profit
How to Calculate Corporate Profit?
- For calculation of Profit, all the Journal Entries related to that period should be booked in the books of accounts & the ledgers should be updated. After doing the following step, the Trial Balance of the company will be considered final & the profit calculation would be done for the period based on the balances present in the trial balance.
- After the Finalization of the Trial Balance for the period, the ledgers mentioned in the trial balance are categorized according to the classifications i.e., Revenue from an operation, direct expenses, indirect expenses, Taxes, Assets, liabilities, etc.
- After the classification, the Revenue from the Operations & other incomes are calculated and are summarized accordingly. After doing so the total income of the company for that period is calculated.
- After the calculation of Total Revenue, the same step is followed for the calculation of the total expenditure. For the same, firstly the Direct expenses are calculated i.e., Direct material consumed, direct wages etc. and after that, the Indirect Expenses are calculated i.e., salary, rent expenses, finance cost, depreciation & the other expenses.
- After the calculation of Total Income & Total Expenditure, the difference between them is calculated. If the Total Income is greater than the Total Expenditure, then the profit is termed as ‘Profit before Tax’.
- After the calculation of ‘Profit before Tax’, the taxes are adjusted and the resulting figure is termed as ‘Profit after Tax’ or ‘Corporate Profit’.
ABC Ltd is a manufacturing company. Accountant of the company is calculating profit for the period 31st Dec 2019. He is calculating profit by considering following figures- Sales value – 3300 lac, other income is 65 lac, cost of material consume- 1400 lac, change in inventory- (100) lac, manufacturing expenses- 1000 lac, employee benefit expenses- 400 lac, finance cost- 150 lac, Depreciation- 100 lac, other expenses- 70 lac, current tax 65 lac, deferred tax- 50 lac. Calculate corporate profit-
The first step is all the transactions will be entered in the system and after that, all those transactions will be posted to the respective ledger, after posting in ledger all the ledgers will be summarized in the trial balance.
Then the accountant will extract the trial balance from the system. After extraction of trail balance grouping, he will do a grouping of all ledger like sales will be grouped in revenue from the operation, any income from interest will be grouped in other income and so on. After these grouping Profit and loss will be prepared-
Calculation of Corporate Profit
- =345.00 – 115.00
- Profit =230.00
Corporate Profit vs Wages
The following are the differences between corporate profit vs wages.
Corporate profit, also called profit after-tax or net income is calculated by deducting expenses from sales or revenue from the operation. Expenses include material expenses, manufacturing expenses, salary and wages, rent, depreciation, interest expenses. After deducting all these expenses, it comes to profit before tax then it needs to calculate corporate tax as per income tax law. After calculation of corporate tax, it deducts from profit before tax then it comes corporate profit.
Wages are a manufacturing expense, directly related to the manufacturing of a product. It is deducted from sales/revenue from operation while calculating corporate profit. It is a part of profit calculation. Wages are the amount paid to workers.
Earning Profit in the business is one of the key reasons for which manufacturers, entrepreneurs or owners start the business. Earning profit helps the organization to expand its business even expanding the business globally. In the initial stage of the business, the company focuses on earning as much so that the earning at least can cover the Fixed expenditure and as much as possible covering the variable expenditure. Earning more than that is what termed as profit for the company. Those excess earnings help the company to hire as many employees as the business needs. It also keeps the motivational value for the employees working in the organization.
As the company’s profit gets bigger, it becomes easy for the sanctioning of Loans or funds for the business from the financial institutions because they provide the funds based on the financials of the company. Strong financials of a company helps the company for doing the CSR (corporate social responsibility) work and it maintains its public image which helps the company to maintain its position in the competitive market.
Corporate Profit is profit received by a company from its business. It is important for all organizations to sustain the expenses of the business. If a company is earning a good profit, it can think about the expansion of the business. If the revenue of the company is covering all the expenses related to the business of a company, then the company is in good condition and it can continue its business and can stand in the market in the long run.
This has been a guide to Corporate Profit and its definition. Here we discuss how to calculate corporate profit, it structure, formula along with examples and its differences with wages. You can learn more from the following articles –