How do businesses account for profits and business valuation?
Other guidance may be gained through accounting. By tracking the income and expenses for a certain period of time, accountants can produce a profit/loss statement. Also known as an income statement, this is a financial statement that shows the results of business activities. Other intangible assets, such as goodwill, or the value of the business’s reputation and relationships that generate continuing business, patents or mailing lists may also be considered when valuing a business. In fact, while the book value of a business, or its total assets less its liabilities, does not consider the value of goodwill, the fair market value of the business will take into account the goodwill that the business has in the community. Fair market value is the price that is agreed upon by a willing buyer and a willing seller when all relevant facts about the business are known.
