Bottom line — AccountingTools

Bottom line — AccountingTools

About Bottom Line Accounting & Tax, LLC

In order to pursue the goal of sustainability, corporate and government leaders must manage companies and economies in terms of balancing and optimizing the triple bottom line of social, environmental, and economic impacts. The TBL concept borrows the well-known and widely accepted idea of financial accounting and its “bottom line” and expands it. The TBL concept borrows the well-known and widely accepted idea of financial accounting and its “bottom line” and expands it.

How are cash flow and revenue different?

bottom line accounting

Ecologically destructive practices, such as overfishing or other endangering depletions of resources are avoided by TBL companies. Often environmental sustainability is the more profitable course for a business in the long run. Arguments that it costs more to be environmentally sound are often specious when the course of the business is analyzed over a period of time. Generally, sustainability reporting metrics are better quantified and standardized for environmental issues than for social ones. A number of respected reporting institutes and registries exist including the Global Reporting Initiative, CERES, Institute 4 Sustainability and others.

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However, profit would generally be stated before the payment of dividends or appropriation to RESERVES. The income statement begins with a company’s main business activity’s sale or service revenues at the top of the report.

An enterprise dedicated to the triple bottom line seeks to provide benefit to many constituencies and not to exploit or endanger any group of them. The “upstreaming” of a portion of profit from the marketing of finished goods back to the original producer of raw materials, for example, a farmer in fair trade agricultural practice, is a common feature. A TBL business also typically seeks to “give back” by contributing to the strength and growth of its community with such things as health care and education. Quantifying this bottom line is relatively new, problematic and often subjective.

The triple bottom line consists of social equity, economic, and environmental factors. As a result, one country in which the 3P concept took deep root was The Netherlands. an accounting term denoting the NET PROFIT from a business operation after all costs have been paid.

Gross Profit, Operating Profit and Net Income

bottom line accounting

In the private sector, a commitment to corporate social responsibility (CSR) implies an obligation to public reporting about the business’ substantial impact for the better of the environment and people. This is distinct from the more limited changes required to deal only with ecological issues. The triple bottom line has also been extended to encompass four pillars, known as the quadruple bottom line (QBL). The fourth pillar denotes a future-oriented approach (future generations, intergenerational equity, etc.). It is a long-term outlook that sets sustainable development and sustainability concerns apart from previous social, environmental, and economic considerations.

After accounting for these costs (including taxes, interest on debt, and various accounting-driven numbers including depreciation and amortization) the company arrives at a bottom line number. I filed my taxes this year with Nona, of Bottom Line Accounting, and had the most pleasant tax-filing experience with her.

She operates from a cozy home office in Fayetteville and offers financial services in payroll, tax returns, monthly bookkeeping, consulting and more. Nona spent 2.5 hours with me, and was extremely knowledgeable, thorough, patient and helpful. It was a pleasure to work with her, and I will definitely be returning next year, to file my taxes with her again. Elkington himself has called for a rethink on TBL and a “product recall” on use of the concept.

  • In order to pursue the goal of sustainability, corporate and government leaders must manage companies and economies in terms of balancing and optimizing the triple bottom line of social, environmental, and economic impacts.
  • The TBL concept borrows the well-known and widely accepted idea of financial accounting and its “bottom line” and expands it.
  • The TBL concept borrows the well-known and widely accepted idea of financial accounting and its “bottom line” and expands it.

The Global Reporting Initiative (GRI) has developed guidelines to enable corporations and NGOs alike to comparably report on the social impact of a business. The concept of TBL demands that a company’s responsibility lies with stakeholders rather than shareholders.

We’re More Than Accounting

This information is located on the lowest line of the income statement, which is the “bottom line” on the report. Someone reading a company’s income statement may skip straight to the bottom line to discern the results of the organization, before going back through the details of the income statement to see what caused the profit or loss. As you continue scanning down the income statement, you’ll see entries for different types of expenses or income. You finally arrive at the last line, where you sometimes find an item known as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA); this is not the bottom line.

Income Statement Top Line vs. Bottom Line

Likewise, positive numbers do not highlight what part of the company’s overall approach is working. It is possible for strong economic conditions (or competitor failure) to lift revenues and improve profits, in spite of poor cost control or a weak long-term strategy. The world of business is filled with a variety of terms, jargons, and odd phrases along with an ample supply of acronyms. The term bottom line is often used and refers to the profitability of a business after all expenses are deducted from revenues. Bottom line profits are net profits after all the costs of the business have been accounted for.

A growing number of financial institutions incorporate a triple bottom line approach in their work. It is at the core of the business of banks in the Global Alliance for Banking on Values, for example. For example, an organization chooses to invest its resources in a strategy to find and keep customers. It develops products or services and markets those offerings, supports its customers and then repeats the cycle again and again. At the end of each accounting period, the company calculates what it received from customers (and other revenue sources) and subtracts all the costs incurred in the process.

Triple bottom line (TBL) accounting expands the traditional reporting framework to take into account social and environmental performance in addition to financial performance. It is an important indicator of overall conditions in the company’s target markets. It is also a barometer of management’s effectiveness in selecting strategies, investing in products and services, marketing, and cost control. Profit should be compared over a period of time, and those involved should look carefully at all variables to understand the factors leading to a company’s bottom line.

He argues that the original idea was to encourage businesses to manage the wider economic, social and environmental impacts of their operations, but its practical use as an accounting tool has now undermined its value. Sustainable development was defined by the Brundtland Commission of the United Nations in 1987.

An example of an organization seeking a triple bottom line would be a social enterprise run as a non-profit, but earning income by offering opportunities for handicapped people who have been labelled “unemployable”, to earn a living by recycling. The organization earns a profit, which is controlled by a volunteer Board, and ploughed back into the community. The social benefit is the meaningful employment of disadvantaged citizens, and the reduction in the society’s welfare or disability costs.

Bottom Line Accounting – The Support You Deserve

Other sources of revenue, such as interest or investment income, are listed next. The following section reports expenses, which may be grouped and reported differently depending on the industry and company preferences. At the bottom of the income statement, the total revenue minus total expenses leaves the net income for the accounting period that is available for company retention or dividend distribution.

In this case, “stakeholders” refers to anyone who is influenced, either directly or indirectly, by the actions of the firm. Examples of stakeholders include employees, customers, suppliers, local residents, government agencies, and creditors. According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit.

Bottom line — AccountingTools

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