Business english
goodresultscausepricestoriseifthe market believesthecompanyisundervalued. However, poor resultsoftencause a
dropinshareprice, asinvestors feel thecompanyisovervalued. Accrualsprincipleormethodmeansthateventsin a
particularreportingperiod, are recordedinthatperiod, ratherthanwhenmoneyisactuallyreceivedor paid out,
whichmayhappenin a laterperiod.TheP&L account(incomestatement in USA) recordstheprofitorthe loss
during a particularreportingperiodusingtheaccrualsprinciple.We show thecost of goodsold(COGS),
forexamplelabor costs cost of employeessalaries and thecost of materials.General expenses
thecostsrelatedtomakingthesesalessuchassalespeoplessalaries, rent forbuildings, etc. A cost of depreciation
thisisnotanactualsum of money paid out, butis showni theaccountstoallowforthewaythatequipmentwearsout and
declinesinvalueovertime and willhavetobereplaced. Thisleavesuswithouroperatingprofit.
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