Earnings are the net profits of a company. Earnings is the income on which corporate taxation is based. Generally, for an accounting of certain aspects of internal operations to make an accurate picture of company operations some other more technical terms are also used as EBIT or EBITDA. The term is generally used in the United States of America but also in other countries such as the United Kingdom.
Earnings can be calculated as the gross profit obtained after deduction of expenses. It can also be calculated as the gross revenue received less the total expenses incurred. The difference between the two amounts is referred to as the income. The income tax payable on earnings is calculated on this basis.
The accounting period in which the company derives its income from its activities can be called the operating profit cycle. This cycle begins with the first sale or production and ends with the distribution of the retained earnings. The income statement of the company reports all these four volumes separately at regular intervals. One of the major uses of earnings estimates is to provide an accounting basis for planning purposes. lastly the net earnings. The method of preparation of earnings statement depends upon the type of business. It mainly depends upon the shareholders’ decision whether they want to have a partnership, C corporation or an unincorporated business. In partnership there is only one report that is provided to the shareholders whereas in an unincorporated business it is two reports. The accountants have to use various techniques in order to prepare the income statement of the company.