How to Compute Profit for a Service Provider Company

A service company is one that sells services to its clients. Different from manufacturing and trading companies, it provides services or works of labor rather than tangible products to its customers. Accounting firms, law firms, schools, janitorial and hotel companies are some of examples of service provider companies. As the operation of this kind differs from the others, the computation and preparation of its statement of operation also differs. Since a service company sells services, we need to compute its cost of services, as computing cost of goods sold in a manufacturing and trading firms which sells goods to its costumers. But in all kind of firms, we compute direct and indirect costs to determine gross and net profit.

The revenues of a service company consist of all its receipts and receivables from rendering services during the period less all refunds associated from them. Unearned revenues collected during the period are not included because they are not related to the services rendered during the period. This concept is called accrual basis. Read more

Preparing your business for Microsoft Vista Operating System’s successor “Windows seven 7”

Microsoft has already released beta Windows 7 for test run of what will succeed to its recently released Windows Vista. If you’re still using and comfortable with Windows XP, then you are already two steps behind with the Microsoft’s evolution of Windows Operating Systems. Operating system is a vital part of your business. All your business computer programs, application and scripts are being played by your operating system. It is important to consider the rapid changes of technology in your business environment to assure that you are running with the most efficient and effective computer tools designed to attain convenience in business operation.

Windows 7 (formerly codenamed Blackcomb and Vienna) is the next issue of Microsoft’s Windows Operating System, replacing its recently release Vista Operating system. Windows 7 is intended to be an incremental upgrade to Vista, with the goal to become fully compatible with device drivers, applications, and hardware which Windows Vista is already compatible with. Microsoft’s presentations given in 2008 have focused on multi-touch support, a redesigned Windows Shell with a new taskbar, a home networking system called HomeGroup, and performance improvements. Read more

Reading your statement of income or profit and loss statement

Among the four basic components of financial statements (the balance sheet, statement of changes in equity, income statement and cash flow statement), the statement of income is the most interesting and exciting to read by its common users. This is true, since it indicates if an entity is having a profit or a loss, and that every business owners, investors, creditors and even the tax authorities may primarily want to see and know first if an entity is earning or making money out of running its business and utilizing its resources.

An income statement also called profit and loss statement (P&L) or sometimes prepared as statement of operation, is a formal statement showing the performance of an entity for a given period of time. The performance of the entity is primarily measured in terms of the level of income earned by the entity through the effective and efficient utilization of its resources. Income statement indicates how revenue (money received or receivable earned from the sale of products and services before costs and expenses are taken out) is transformed into net income or net profit (the result after all revenues, costs and expenses have been accounted for). This income performance is used to be known as the results of operations of the entity. Read more

Sample one-year and two-year comparative balance sheet statements

In my previous post, I wrote about understanding the balance sheet. Balance sheet shows the financial condition of a particular business entity. Reading and understanding balance sheet is very important for short-term and long-term analysis. This statement is the ultimate financial statement since income statement’s net profit is forwarded and closed in the retained earnings (which is shown in the equity section of the balance sheet); cash flow statement is netted to cash and reported as current asset in the asset section of the balance sheet; and the equity in the statement of changes in equity is also forwarded as equity in the balance sheet. Read more

Understanding the Balance Sheet

A balance sheet is a formal statement showing the financial position of an entity as of a particular date. The balance sheet is the only financial statement that reports as of a particular date compare to income statement, statement of changes in equity, and cash flows which all reports for a particular period of time. The balance sheet presents the three elements of financial position, namely assets, liabilities and equity.

Assets are defined as resources controlled by the entity as a result of past transactions and events and from which future economic benefits are expected to flow to the company. In layman’s language these are the properties owned by the entity. Read more

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