how to read a balance sheet - some basic concepts

Lesson 2: Some Basic Concepts

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Sales v/s Revenue

Revenue

Top Line

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Sales v/s Revenue

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Profits vs Income

$40 $10 $75

Revenue $75

Costs and Expenses $50 ($40 + $10)

Profits/Income $25 ($75 - $50)

Bottom Line

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Profits vs Income

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Costs vs Expenses

Cost Expenses

Money spent to make a product

Money spent to develop, sell, manage and account for it

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Profit vs Cash

•  ‘Profit’ and ‘Cash’ are not the same thing.

•  ‘Profit’ is what you earn from revenues, after meeting all expenses and costs.

•  ‘Cash’ is something that you have in the bank or in hand and are not necessarily related to profits.

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Profit vs Cash

Sales $100,000 Costs and Expenses $75,000 Profit $25,000 Equipment purchased $ 10,000 Cash balance $15,000

Summary

Some Basic Concepts

§  Sales and revenue mean the same thing. §  Profits and income mean the same thing. §  Costs are different from expenses. §  Profits are different from cash.

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