Common Mistakes in Economic Loss Part 2 – Expenses not deducted
Any economic loss needs to take into account the relevant expenses incurred in earning that income. The variable expenses need to be taken into account. Variable expenses are expenses that are dependent upon the level of sales in a business
Many people talk about their income in a gross basis.
A taxi driver will often say they are earning $1600 per week, but they fail to include their expenses such as lease costs, repairs and fuel. After examination of the relevant expenses, we find that they earn around $400 gross per week after expenses and before tax.
Builders and tradespeople will often neglect to mention the materials and sub-contractors that they incurred in the earning of that income.
It is necessary to look at the gross profit of the business. What often makes it difficult is that often the financial statements do not show cost of sales or gross profit, so it is necessary to reconstruct the profit and loss statements to show cost of sales and gross profit.