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Profit and Loss Account

profit and loss account

What is Profit and Loss Account?

A Profit and Loss Account is a kind of financial statement that states the outcome of business tasks at the time of an accounting period. Income and expenses reported are directly associated with an organization and are taken into consideration to estimate the performance in terms of profit and loss. A profit and loss account is usually known as P&L A/c but it can also be called an Income and Expense Statement or Profit and Loss Statement. No matter what it has been called, it discloses the cost incurred or money spent in an effort of the enterprise to generate business revenue. 

Profit and Loss Account Format

A trading account has been prepared to ascertain the Gross profit or loss. On the other hand, the Profit and Loss Account has been prepared to ascertain the Net profit or loss. When it comes to the Profit and Loss account, it only shows indirect expenses. No matter if it is cash or non-cash, all the items of expenses and revenue are shown in this account. Only the expenses or revenue associated with the present year are debited or credited to the account of profit and loss. The profit and loss account begins with gross profit at the credit section and in case if there is a gross loss, it is displayed on the debit side. 

Profit and Loss Account Format

ParticularsAmountParticularsAmount
To Gross loss b/dTo Gross profit b/d
Management expensesIncome:
To salariesBy Discount received
To office rent, rates, and taxesBy Commission received
To printing and stationeryNon-trading income:
To Telephone chargesBy Bank interest
To InsuranceBy Rent received
To Audit feesBy Dividend received
To Legal chargesBy Bad debts recovered
To Electricity chargesAbnormal gains:
To Maintenance expensesBy Profit on sale of machinery
To Repairs and renewalsBy Profit on sale of investments
To DepreciationBy Net Loss
(transferred to Capital A/c)
Selling distribution expenses:
To Salaries
To Advertisement
To Godown
To Carriage outward
To Bad debts
To Provision for bad debts
To Selling commission
Financial expenses:
Bank charges
Interest on loan
Discount allowed
Abnormal losses:
To Loss on sale of machinery
To Loss on sale of investments
To Loss by fire
To Net Profit
 (transferred to capital a/c)
                                    TOTAL                                      TOTAL

How to Prepare a Profit and Loss Statement?

It is all up to you, how often you want to make a profit and loss statement. Several companies prefer to run the statement quarterly while some others choose to run it monthly. Using accounting software makes it easy to prepare a P/L statement. Alternatively, you can make use of a template to create a profit/loss statement by the following steps. 

Step 1 – Estimate Business Revenue 

The first step in making a profit and loss statement is calculating all the business revenue received. Current account balances can be obtained from your general ledgers like current accounts receivable and cash balances. In case if you are preparing a monthly profit and loss statement, you have to include all the revenue received during that particular time frame no matter whether you collected the business revenue or not. You have to just add the received revenue of that three-month time frame when you run a quarterly statement. While you calculate revenue, make sure that you involve all revenue received no matter if it is from selling your old printer to the business next door or from selling products and services. 

Step 2: Estimate Cost of Goods Sold

The cost of your goods sold is a crucial part of any profit and loss statement. If you are making the wallets, you would need to include the materials and supplies needed to make them. If you are selling wallets, you would need to involve the cost of buying the wallets from the manufacturer. If you are selling services, you would require to include the time of your employee that rendered the service or the cost of your time.

Step 3: Subtract Cost of Goods Sold from Revenue to Discover Gross Profit

Gross Profit or Loss = Revenue – Goods sold cost

Once you are done with the calculation of your revenue and cost of goods sold, you would just require subtracting the cost of goods supplied to reach your gross profit number. Gross profit is nothing but the profit of your business earned from the sale of your services and products. 

Step 4: Estimate Operating Expenses

Next, you have to calculate every operating expense including payroll, rent, utilities, travel, postage, and equipment. 

Step 5: Subtract Operating Expenses from Gross Profit to Get Operating Profit

You would need to subtract the total received from the calculation of your operating expenses to get your total operating profit. This would provide you with either total operating profit or loss. 

Gross Profit – Operating Expenses = Operating Profit or Loss 

Step 6: Add Extra Income to your Operating Profit

If you have not included any extra income in your revenue totals mentioned above like dividends from investments or interest income, you would need to add them here. Once you have added to your operating profit, the total is earnings earned before depreciation, interest, amortization, taxes, or else it is called EBITDA.

EBITDA = Operating Profit + (Dividends Earned + Interest Income)

Step 7: Calculate Depreciation, Taxes, Interest, and Amortization

Next, you have to calculate any taxes due, interest payments, and depreciation as well and expenses of amortization. 

Step 8: Subtract Amortization Expenses, Depreciation, Taxes, and Interest from EBITDA to Get Net Profit

The very last step is to subtract depreciation, taxes, interest, and amortization expenses to get your net profit or net income. 

EBITDA – (Depreciation + Taxes + Interest) = EBITDA

Profit and Loss Report on myBillBook

The Profit and Loss Report displays total Expenses and income for a particular time. It can also be known as a 

  • “Statement of Financial Results”
  • “Income Statement”
  • “Statement of Operations” 
  • “Income & Expense Statement”.

With the help of the following steps, you can run a Profit & Loss Report:

  1. Get into the Reports section
  2. Choose Profit & Loss below Accounting Reports

To adjust the view of your Profit & Loss Report, you have to click on Filters under Settings. From there, you can make changes:

  • Date Range – Select from This Quarter, Last Year, This Year, Custom, or Last Quarter to fill in a particular date range (or if you have changed your Financial Year End date, select from the extra options)
  • Reset all – Press on the restore link to restore the filters back to the settings of a default
  • Currency – Switching between Multiple Currencies
  • Group By – Select to view your Income and Expenses by Quarter or by Month
  • Income – Run the Profit & Loss Report by either Collected (Cash-Based) or Billed (Accrual) income:
  • Collected – This will exhibit the details of your income only for your paid invoices
  • Billed – This will display the information of your income for everything that has been sent out no matter if the bill has been paid or not.

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