ACC 240 Topic 4 DQ 1
Topic 4 Participation
1). Describe the difference between gross profit and income from operations. Why would a
company be concerned with gross profit rather than just overall income from operations?
The difference in income and gross profit is that gross profit comes from subtracting
your direct cost to produce your products from the income earned. On the other hand, income
comes from the amount left over that is earned after subtracting it from the operating
expenses of the business. The gross profit is important because it influences how much you are
spending on your overall product, and ultimately keeps you headed in the right direction more
so than the income worries. If you keep focus on the gross profit and limit your expenses on
your product, and you are making profit from that product your income with follow in the right
direction, but if you are spending too much money on your product and not making any money
there is no income, that is why gross profit is more important.
2). Explain what is meant by the term "sustainable income". Why is it important to distinguish
between sustainable income and actual net income? Is one more important than the other? Please
explain.
Sustainable income is a hard one to grasp but it is the likely amount of income you will obtain in
the future. It’s very important to distinguish between sustainable income and actual net income
because the unforeseeable revenues, the undetermined gains, and losses in the year for net
income. This is important to note because this means that sustainable income is actually more
important than your net income because of the more detail it entails about each thing, and not
placing them as whole.
3). A short-term creditor is interested in the liquidity of a company whereas a long-term creditor
might be more interested in the company's solvency. Do you agree with this statement? Please
defend your answer.
Short term creditors want to know if a firm has the current ability to pay off debt. Long term
creditors are concerned if they can sustain the ability to stay on track with long term liabilities.
Liquidity is the ability to pay short term liabilities, while on the other hand solvency is the ability
to pay long term obligations. So yes, due to the definitions I agree with the above statement.
Topic 4 Participation
1). Describe the difference between gross profit and income from operations. Why would a
company be concerned with gross profit rather than just overall income from operations?
The difference in income and gross profit is that gross profit comes from subtracting
your direct cost to produce your products from the income earned. On the other hand, income
comes from the amount left over that is earned after subtracting it from the operating
expenses of the business. The gross profit is important because it influences how much you are
spending on your overall product, and ultimately keeps you headed in the right direction more
so than the income worries. If you keep focus on the gross profit and limit your expenses on
your product, and you are making profit from that product your income with follow in the right
direction, but if you are spending too much money on your product and not making any money
there is no income, that is why gross profit is more important.
2). Explain what is meant by the term "sustainable income". Why is it important to distinguish
between sustainable income and actual net income? Is one more important than the other? Please
explain.
Sustainable income is a hard one to grasp but it is the likely amount of income you will obtain in
the future. It’s very important to distinguish between sustainable income and actual net income
because the unforeseeable revenues, the undetermined gains, and losses in the year for net
income. This is important to note because this means that sustainable income is actually more
important than your net income because of the more detail it entails about each thing, and not
placing them as whole.
3). A short-term creditor is interested in the liquidity of a company whereas a long-term creditor
might be more interested in the company's solvency. Do you agree with this statement? Please
defend your answer.
Short term creditors want to know if a firm has the current ability to pay off debt. Long term
creditors are concerned if they can sustain the ability to stay on track with long term liabilities.
Liquidity is the ability to pay short term liabilities, while on the other hand solvency is the ability
to pay long term obligations. So yes, due to the definitions I agree with the above statement.
