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Please no.
Please don't make me go in depth as to why not all profits are equal.
Please, educate us.
I don't get it.
Profit isn't cash-in-hand. It's not even a measure of cash outflows or inflows. Not only do estimates and uncertainties make up the profit, each individual account on a companies books can likely act as why one company's profit isn't equal to another company's profit even if the numerical profit is the same.
So I will try to use a simple example.
Say company X and company Y made 10k profit.
X sells widgets only for cash or cash equivalents at the point of sale. Meaning 100% of its revenue is collected in cash.
Y sells widgets on credit. Meaning none of its revenue is collected in cash at the point of sale. The 10k figure is profit net of that years bed debt expense. The next year, it is learned that 5k of debts over the allowance for doubtful accounts accounts can not be collected. 5k is then written off. Given that this expense will show up in this years profit or loss through indirect means, the loss really was a result of an estimate of last year, or that 10k figure.
In this case, the decision to allow customers to buy on credit would act as a reason why the companies may have the same numerical profit, but not act as an accurate figure as to how each company is doing if you were to just look at profit by its self.
And I swear I'm not going to let her know all the pain I have known
16-Mar-2016 00:41:59
- Last edited on
16-Mar-2016 00:44:27
by
Averia Light