Key Accounting Information

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A profit and loss statement is one of a business' main financial statements, along with the balance sheet and cash flow statement.

Profit and loss statements, also known as income statements or statements of financial performance, are a summary of the income and expenses of a business that determine the profit made in a given time period. Profit and loss statements are usually performed periodically, either annually, quarterly or monthly.

The profit and loss statement has a basic mathematical formula:

Income (Revenues Gains) - Expenses = Net profit

If income exceeds business expenses, the business will have effectively made a profit. On the other hand, if expenses exceed income, a loss would have been made.

Calculating Profit

A profit and loss statement is a great tool for identifying items of high expenditure or expenses that were unproductive in producing profit. By analysing the profit and loss statement you can better control business expenditure and thereby potentially increase profits.

The following table illustrates the structure of the income statement as well as some sample account headings that go under each income statement classification:

(Your business name)
Income Statement
for the period ended __ / __ / ____
     
Income   $
Revenues    
Sales   0
Less sales returns   0
Service revenue   0
Less discounts given   0
Net sales revenue   Add all revenue figures
     
Less COGS    
Opening stock   0
Plus purchases made   0
Less closing stock   0
Cost of Goods Sold   Add all COGS figures
     
Gross Profit   Net sales revenue - COGS
     
Gains    
Gain made on sale of equipment   0
Loss on sale of equipment   0
Total income   Gross profit Gains
     
Expenses    
Advertising Expense   0
Rent Expense   0
Telephone Expense   0
Administration Expense   0
Insurance Expense    
Interest Expense   0
Total Expenses   Add all expenses
     

Net Profit

   Total revenue - Total expenses

Using this general format you can project (budget) your income earnings and expected expenditure for the next twelve months. It may be beneficial if you identify each projection period on the projected profit and loss statement, carefully identify your expenses and be reasonably conservative with your income projections.

To assist you in developing your profit and loss statements, you can download the following sample templates:

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Financial Plan

Q.1 Prepare a 12 month and 5 year profit and loss statement for your business. You can download sample templates here. Give Answer