Profit and Loss Statement Definition:
Under financial accounting, “profit and loss account, statement of revenue or loss, financial performance statement, operating statement, earnings statement, statement of profit and loss, P&L statement, Income statement all this terms refers to Profit and Loss statement of the financial reports”. This statement shows the revenue and expenditures of a business during an accounting year. Primary purpose of preparing income statement is to present summary of profit and loss of the business or an organisation to the members directly or indirectly linked with business. For example: Entities like Investors, Banks, Competitors, Board of directors, shareholders are concern about overview of profit or loss of the business for various objectives.
There are institutions like non-profitable organizations or a charitable organization does not intend to prepare income statement. Since their motto of the business is not to earn profits or showcase earnings. Perhaps these intuitions prepare statement which summarizes information related to source of funds and expenses incurred for various programs or initiatives. Such statement is known as “statement of activities”.
There are two methods of preparing income statement. First one is the simple procedure subtracting expenditures from income to evaluate profit or loss for a specified period. Else second procedure is to first calculate gross profit, then evaluate general and operating expenses, then calculating operating profit, then profit before taxes and lastly profit after taxes to summarize net income of the business.
Example of Profit and Loss Statement:
Let us take an example of income statement / profit and loss statement to further understand:
P&L / Profit and Loss Statement Example: Simple Method:
XYZ Textile India Pvt. Ltd. | ||
Income Statement / Statement of Profit and Loss |
||
P&L statement for the current assessment year. | ||
Particulars | Debit (Rs.) | Credit (Rs.) |
Revenues: | ||
Gross Profit | 5,20,000 | |
Expenses: | ||
Advertising | 11,500 | |
Bank Charges & Other Fees | 5,344 | |
Bookkeeping Salaries | 7,550 | |
Sub-Contractors | 93,200 | |
Entertainment expenses | 10,750 | |
Insurance Premium | 5,950 | |
Professional and Legal Charges | 6,775 | |
Postage payments | 5,832 | |
Printing and Stationery expenses | 5,520 | |
Rent paid | 18,200 | |
Material Costs | 79,600 | |
Telephone and Mobile Bills | 6,200 | |
Utilities | 6,691 | |
Net Expenses | -2,63,112 | |
Net Income (Net Profit / Loss) | 2,56,888 |
P&L / Profit and Loss Statement Example: Advanced Method:
PQR Petroleum India Pvt. Ltd. | ||
Statement of Income / Profit and Loss Statement |
||
P&L statement for the current assessment year. | ||
Particulars | Rs. in ‘000 | Rs. in ‘000 |
Sales | 50,000 | |
Cost of goods sold | -2,500 | |
Other sales costs | -1,500 | |
Gross Profit | 46,000 | |
Overhead expenses | -1,000 | |
Other expenses | -5,000 | |
Operating Profit and Loss | 40,000 | |
Interest Charges | -500 | |
Net Profit (before Taxes) | 39,500 | |
Taxation | -4,000 | |
Net Profit after Taxes | 35,500 |
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Basics of Accounting for Beginners
- Chapter 1: What is Accounting with Examples
- Chapter 2: Objectives of Accounting
- Chapter 3: Types of Accounts
- Chapter 4: Branches of Accounting
- Chapter 5: Accounting Process
- Chapter 6: What is Assets and Current Assets?
- Chapter 7: What is Liability and Current Liabilities?
- Chapter 8: What is Revenue and Expenses?
- Chapter 9: What is a Single Entry System?
- Chapter 10: What is Double Entry System?
- Chapter 11: What are Journal Entries? Format and Examples
- Chapter 12: What Is a General Ledger? Format with Example
- Chapter 13: What is a Trial Balance? Examples and Limitations
- Currently Reading: What is a Profit and Loss Statement or Income Statement?
- Chapter 15: What is a Balance Sheet? Definition, Format and Examples
- Chapter 16: What is Managerial Accounting? Role, Job and Objectives
- Chapter 17: Accounting Quiz – Basics of Accounting for Beginners Module