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What Does "Break Even" Mean?

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  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 25 August 2016
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“Break even” is a financial or accounting term. It is used to refer to a situation where there is no surplus but there also is not any debt. This means that the final balance is zero. The phrase may be used to refer to situations in personal finance or when talking about business activity.

There are generally three positions that a person or business can be in financially. She can be indebted, can have positive net worth, or can break even. If a person breaks even, she does not have anything remaining. When considering a person monthly budget, for instance, to break even would mean that an individual has covered her expenses but does not have any money remaining at the end of the month.

In cases where there are single or simple transactions, it may be fairly easy to determine whether a person or company has broken even. To do so, it is necessary to have a full list of the costs and debts and a list of the current assets. The first category of figures must be deducted from the second category of figures. To break even, the remaining balance cannot be any number other than zero.

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Breaking even can be seen as a positive or negative result, depending on the circumstances. If a college student purchased a textbook, for example, that she later found out that she did not need but that could not be returned, he may decide to sell it. If he gets the amount that he paid for it, he will break even and that will likely be pleasing to him. In an instance where a person establishes a business, however, it would likely be frustrating and discouraging to lack a profit year after year.

Most people associate growth with profits, but this is not always the case. It can be a bit confusing to understand that a business can break even yet may have experienced substantial growth. This is possible because a company may have $36,000 US Dollars (USD) in revenue this year and its debt may consume all of that. Next year, it may have $50,000 USD in revenue, which may again be consumed by debt. Although there is ultimately nothing left at the end of the accounting period, the fact that the company does a greater volume of business each year means that it is growing.

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