Financial Planning Brisbane

What are expenses expenses relate to all costs necessary to run a business what are these costs it could be salary rent interest paid on loans insurance and so on the last one I have if you look at your slide is cost of goods sold it’s the cost of the goods you bought I do need to spend it a minute on this because it’s important follow me through this very carefully let’s say you spend $10,000 on some goods you solve the goods for 30,000 you spent 10 you sold it for 30 so what’s your revenue it’s 30,000 the inventory of 10,000 which you bought is initially an asset when you sell it it gets converted to an expense you have to call it a name so you call it cost of goods sold so cost of goods sold is an expense cost of goods sold is the cost of the inventory you sold now let’s put this together.

As you can see revenue less expense gives you profit that profit goes into an account called retained earnings every year when you make a profit you stick it in their retained earnings together with common stock is part of the equity of the business now let me make it a little hard for you look at the diagram in front of you which of these are considered to be equally or equity as a British thing.

Cash is an asset it’s not equity retain earnings answers yes retained earnings is part of equity common stock answers yes common stock is part of equity patent no it’s an asset it’s not part of equity buildings answer’s no building is an asset it’s not equity accounts receivable answers no accounts receivable is an asset not equity let’s look at the next two and this is very important in fact it’s so important that I’ll repeat it if you look revenue is considered part of equity expense is considered part of equity why if you remember revenue less expense give you profit profit goes into retained earnings retained earnings is considered part of equity.

Find out more about chartered accountants brisbane.