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Glossary · Business and projects

Profit

In short: Profit is the difference between income and costs over a period — what is left once all the costs of the business are taken away from sales.

Simply put: If you sold €5,000 worth in a month and everything (stock, rent, wages, fees) cost you €4,200, the profit is €800. Profit is a calculation "on paper" — it does not tell you when the money actually arrives. That is why a business can be in profit and still run out of cash.

Example: A café sells €9,000 in a month; direct costs €3,600, indirect costs €4,800. Profit: 9,000 − 3,600 − 4,800 = €600. If half the customers are firms paying after 60 days, there may be no cash for the rent despite the profit.

Watch out: "if I'm selling, I'm earning" is a myth — until you pass the break-even point, sales only cover costs. And "if there is profit, there will be cash" is not necessarily true.

Source: OpenStax, "Principles of Managerial Accounting", 3.2 — https://openstax.org/books/principles-managerial-accounting/pages/3-2-calculate-a-break-even-point-in-units-and-dollars · Module 8, principle 8, and Module 18.

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