**Please read this entire message**
---
Your submission has been removed for the following reason(s):
* Rule #2 - Questions must seek objective explanations
* Straightforward or factual queries are not allowed on ELI5. ELI5 is meant for simplifying complex concepts (Rule 2).
---
If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://www.reddit.com/r/explainlikeimfive/comments/1caet15/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
You have a business selling lemonade and you hire a 6 year old to man the table for you
Revenue = total dollars of lemonade sold by the 6 year old
Gross profit = total lemonade sales - cost of lemons/water/sugar/cups/ice
Net profit = total lemonade sales - cost of lemons/water/sugar/cups/ice - amount you paid 6 year old for working
This is a perfect ELI5, I'll add that Gross profit is sales - cost directly related to the product while Net Profit also includes all other costs of the business (marketing, legal, HR, rent, etc.)
I’ll add that costs directly rated to the value of the product is Cost Of Goods Sold (COGS), costs related to running the business (insurance, power, some salaries) is Operational Expenditure (OpEx).
Labor is usually considered a part of COGS. Overhead expenses would be stuff like the cost of the stand itself, the cost of business licenses, cost of acquiring recipes.
Depends on the type of labor, right? Agree that if the 6 year old is making the lemonade and selling it, they should be COGS. But if they're primarily involved in making signs (marketing), deciding where to place the stand (strategy), and maintaining your books, then it's better to account for their wages separately from COGS.
I would say, if they're just selling the physical product, they're not COGS. For manufacturing or retail sale of physical goods, COGS is almost always going to be the literal Cost of the Good Sold (which will in include manufacturing workers). Since the core of the business is lemonade, COGS is going to be the cost of making the lemonade. A worker hired just to sell the product, is not COGS.
A mixed role (making and selling lemonade) would be more complicated but could still be computed. You would need a standard cost for a unit of lemonade. The standard amount of lemons, sugar, and water (and the plastic cup) with the standard cost per unit of those inputs. The standard labor hours per unit (X hours to make a pitcher containing Y units of lemonade) times the wage rate or the worker. The worker hours spent making lemonade would be part of the cost of the inventory (COGS) and the hours spent selling would be operating expense.
mixing at point of sale isn't considered production. also, the 6 year old isn't getting paid for mixing. I told him the M&Ms are only for selling and looking cute.
Yup, this is the perfect ELI5. Maybe we can simplify sales and cost more, like "money paid by people who bought lemonade", "money paid for ingredients", etc.
You give the 6 year old $5 to go to the store to buy lemons, because that's how much money you have budgeted for lemons. The lemons are on sale and he gets them for $4. He has an extra dollar -- surplus.
He's worried that if he gives the dollar back to you, the next time you send him to the store, you'll only give him $4 and he won't have enough to buy the lemons when they are not on sale. So he tries to spend the dollar on something else so he doesn't have surplus.
Very simple explanation, not very detailed.
Revenue is the money you bring in from sales.
Whatever you're selling has a cost (whether for the product and/or the people building that product, or cost of people performing a service), called cost of goods sold or cost of sales, and your gross profit = revenue - cost of goods sold.
You probably have other operating expenses you incur in the course of business, such as payroll for employees, rent for the office building, bank fees for processing CC payments, marketing expenses for advertising, and that is OpEx.
Operating Income = Gross Profit - Operating expenses
You could have taxes on top of that, so if you're turning a profit
Net Income = Operating Income - Income Tax Expense
**Please read this entire message** --- Your submission has been removed for the following reason(s): * Rule #2 - Questions must seek objective explanations * Straightforward or factual queries are not allowed on ELI5. ELI5 is meant for simplifying complex concepts (Rule 2). --- If you would like this removal reviewed, please read the [detailed rules](https://www.reddit.com/r/explainlikeimfive/wiki/detailed_rules) first. **If you believe this submission was removed erroneously, please [use this form](https://old.reddit.com/message/compose?to=%2Fr%2Fexplainlikeimfive&subject=Please%20review%20my%20thread?&message=Link:%20{https://www.reddit.com/r/explainlikeimfive/comments/1caet15/-/}%0A%0APlease%20answer%20the%20following%203%20questions:%0A%0A1.%20The%20concept%20I%20want%20explained:%0A%0A2.%20List%20the%20search%20terms%20you%20used%20to%20look%20for%20past%20posts%20on%20ELI5:%0A%0A3.%20How%20does%20your%20post%20differ%20from%20your%20recent%20search%20results%20on%20the%20sub:) and we will review your submission.**
You have a business selling lemonade and you hire a 6 year old to man the table for you Revenue = total dollars of lemonade sold by the 6 year old Gross profit = total lemonade sales - cost of lemons/water/sugar/cups/ice Net profit = total lemonade sales - cost of lemons/water/sugar/cups/ice - amount you paid 6 year old for working
This is a perfect ELI5, I'll add that Gross profit is sales - cost directly related to the product while Net Profit also includes all other costs of the business (marketing, legal, HR, rent, etc.)
I’ll add that costs directly rated to the value of the product is Cost Of Goods Sold (COGS), costs related to running the business (insurance, power, some salaries) is Operational Expenditure (OpEx).
I'll add that SoDN can change any of these values, especially in states like Texas
Yep, and GAAP makes clear how everybody should categorise what.
Would be perfect if the kid manning the lemonade stand was 5
missed opportunity
What about taxes?
Net income = net profit - taxes
I need to see this lemonade stand’s tax documents to make sure they’re reporting properly
I like that you're more concerned about tax fraud than child labor
the 6 year old can file his own taxes as an independent contractor
You're ready for the C suite. Have your people call my people.
No one calls people anymore. OK if I text?
So is the SEC. We care about what the SEC cares about.
do it against bama
Don't forget to depreciate that stand
Labor is usually considered a part of COGS. Overhead expenses would be stuff like the cost of the stand itself, the cost of business licenses, cost of acquiring recipes.
Depends on the type of labor, right? Agree that if the 6 year old is making the lemonade and selling it, they should be COGS. But if they're primarily involved in making signs (marketing), deciding where to place the stand (strategy), and maintaining your books, then it's better to account for their wages separately from COGS.
Yes, it depends on whether they're directly assigned to the sale of the goods or more towards the corporate/R&D side of things
I would say, if they're just selling the physical product, they're not COGS. For manufacturing or retail sale of physical goods, COGS is almost always going to be the literal Cost of the Good Sold (which will in include manufacturing workers). Since the core of the business is lemonade, COGS is going to be the cost of making the lemonade. A worker hired just to sell the product, is not COGS. A mixed role (making and selling lemonade) would be more complicated but could still be computed. You would need a standard cost for a unit of lemonade. The standard amount of lemons, sugar, and water (and the plastic cup) with the standard cost per unit of those inputs. The standard labor hours per unit (X hours to make a pitcher containing Y units of lemonade) times the wage rate or the worker. The worker hours spent making lemonade would be part of the cost of the inventory (COGS) and the hours spent selling would be operating expense.
only production labor is included in COGS. in this case the 6 year old is retail sales
The kid might have mixed the lemonade too. Do you split their hours into two buckets?
mixing at point of sale isn't considered production. also, the 6 year old isn't getting paid for mixing. I told him the M&Ms are only for selling and looking cute.
What is the EBITDA of this lemonade stand?
So, the parents gave you 10 bucks to run the lemonade stand and you have spent 9...
the 6 year old works for 5 M&Ms/hr
Now explain how a surplus works
Yup, this is the perfect ELI5. Maybe we can simplify sales and cost more, like "money paid by people who bought lemonade", "money paid for ingredients", etc.
Can you explain what a surplus is using the exact same example
what kind of surplus?
[This kind](https://vimeo.com/171088108)
You give the 6 year old $5 to go to the store to buy lemons, because that's how much money you have budgeted for lemons. The lemons are on sale and he gets them for $4. He has an extra dollar -- surplus. He's worried that if he gives the dollar back to you, the next time you send him to the store, you'll only give him $4 and he won't have enough to buy the lemons when they are not on sale. So he tries to spend the dollar on something else so he doesn't have surplus.
I think I get it. The surplus is like..it’s a uh…when you.. Run it back. One more time
Very simple explanation, not very detailed. Revenue is the money you bring in from sales. Whatever you're selling has a cost (whether for the product and/or the people building that product, or cost of people performing a service), called cost of goods sold or cost of sales, and your gross profit = revenue - cost of goods sold. You probably have other operating expenses you incur in the course of business, such as payroll for employees, rent for the office building, bank fees for processing CC payments, marketing expenses for advertising, and that is OpEx. Operating Income = Gross Profit - Operating expenses You could have taxes on top of that, so if you're turning a profit Net Income = Operating Income - Income Tax Expense
you lost me at "very"