In accounting, when we say “bottom line”, we are referring to the profit or loss (Also see What is the Relationship between the Profit and Loss Statement and the Balance Sheet?) of a company in an accounting period. This is the amount of income the company has earned after subtracting all the expenses. As it appears at the bottom of a company’s profit and loss statement, people often call it the bottom line.
The bottom line is one of the essential elements that help in showing the progress of the business. Hence, this proves the importance of preparing financial statements as business owners need the information in them to understand the financial position of their business. Before they can generate those statements, they need to make sure that they have recorded all the financial transactions in the books of accounts correctly. If they are too busy to complete these tasks by themselves, they can consider employing an accounting services in Johor Bahru.
In the company’s profit and loss statement, the bottom line shows whether the profitability and wealth of the company have increased or decreased. If business owners (Also see Tricks From Millionaire Business Owners) want to improve the bottom line, they should increase the revenue of their company or reduce the expenses incurred. To achieve this, they may implement some strategies to improve the efficiency of business operations.
There are a lot of ways that can help business owners to increase the top line, that is, to increase the revenue of their business. They may increase the number or types of products manufactures, increase the prices of their products, expand business lines and so on. They can also find ways to increase other income that does not come from the company’s core business activities. Some of the examples include rental, interests, as well as earnings obtained from the disposal of fixed assets (Also see Guide to Non-current Asset).
As mentioned above, one can also increase the top line by reducing the expenses incurred. Hence, business owners need to ensure the efficiency of the company’s operations and manufacturing process. When purchasing the raw materials required for production, they should assess whether the prices are reasonable and affordable. Also, they should cut down other expenses by increasing the effectiveness of the business operations and implementing some strategies that help in cost reduction.
At the end of an accounting period, the accountants will add the amounts recorded in the bottom line to the company’s retained earnings. Business owners may use the retained earnings (Also see How to Classify Retained Earnings?) to repurchase the company’s shares, pay a dividend to the shareholders or invest them into the company to improve to the efficiency of business operations, hence generating more income for them.