What is Profit
And Loss Statement
An income statement, sometimes referred to as a profit and loss statement or P&L account, is an essential financial document that summarizes a business’s receipts, outlays, and earnings for a given time frame. For creditors and investors to evaluate a company’s historical performance and forecast its financial results, this statement is crucial.
What Makes a Profit and Loss Statement Structured?
Regarding the debit side:
- Gross Loss (from Trading Account)
- All Indirect Expenses
Regarding the credit side:
- Gross Profit (from Trading Account)
- All Indirect Revenues
Which parts make up the P&L Statement?
- Revenue/Sales: Total income from sales of goods or services.
- Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold.
- Gross Profit: Revenue minus COGS.
- Selling, General, and Administrative Expenses (SG&A): Overhead and operational costs.
- Depreciation: Reduction in value of assets over time.
- Interest Income/Expenses: Earnings or costs from interest-bearing assets and liabilities.
- Taxes: Government levies on profit.
- Net Profit/Income: Total earnings after all expenses and taxes.
How should a profit and loss statement be prepared?
- Prepare Ledger Accounts: Use a journal book to compile ledger closing balances.
- Create Trial Balance: Summarize all ledger accounts with their closing balances.
- Compile Profit and Loss Statement: Post ledger accounts for purchases, sales, direct and indirect expenses, and income.
What does a profit and loss account look like?
| Particulars | Amount | Particulars | Amount |
| To Opening Stock | XXX | By Sales | XXX |
| To Purchases | XXX | By Closing Stock | XXX |
| To Direct Expenses | XXX | ||
| To Gross Profit | XXX | ||
| To Operating Expenses | XXX | By Gross Profit | XXX |
| To Operating Profit | XXX | By Operating Profit | XXX |
| To Non-Operating Expenses | XXX | By Operating Profit | XXX |
| To Exceptional Items | XXX | ||
| To Finance Cost | XXX | ||
| To Depreciation | XXX | ||
| To Net Profit Before Tax | XXX |
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