Core Business Concepts

In this Blog Post, I’m going to talk about formulas that will help out with your business (if you decide to start one). The post will encompass two areas that calculate financial statistics: Assets, liabilities, and Owner's Equity; as well as Profit- loss.

The Basic formula involving assets, liabilities, and capital is:

Assets = Liabilities + Owner's Equity

Definitions:

Assets = Assets are something that have financial value and produce positive economic value.

There are 3 main types of assets: Fixed Income (Bonds), Equities (Stocks), and Cash.

Liabilities = Liabilities are something that have Negative Economic Value. It's a financial obligation that a business has to pay to a person or a business at the end of an accounting period.

There are 3 types of liabilities: Long-term, Current, and Contingent.

Owner's Equity = Amount of money an Owner has invested into a business after business assets are subtracted by liabilities. Owner's Equity refers to the assets of a company that the Owner can claim.

Here are some Types of Owner's Equity: Retained Earnings, Treasury Stock, Paid- In Capital, Preferred Stock, Contributed Capital, Outstanding Shares, Share Capital, and Other Comprehensive Income.

P.S ~ You can change around the equation to satisfy different parts of it, for example:

Liabilities = Assets - Owners Equity

or

Owner's Equity = Assets - Liabilities

Profit- Loss Formula

Profit = Selling Price - Cost Price

Loss = Cost Price - Selling price

The Profit- loss formula is used to calculate the financial loss or gain you obtain from buying and selling products. It also shows a company’s performance for a specific period of time.

The profit is deemed as the amount of money a business has after paying all their costs. 

The loss is deemed as the amount of money a business has lost when costs are more than income.

Another way to write the Profit side of the Formula is:

Net Sales - Cost of Sales = Gross profit

Gross Profit - Operating Expenses = Net Operating Profit

This equation can still be used for calculating specific parts of the profits, except it falls under the Accounting Area in business.