Profit & Loss

The profit and loss statement is a crucial financial statement that business owners and accountants utilise. Based on your income and costs, the report displays information about your net profit or loss. 

You may also use the P&L report to look at revenue and spending trends, cash flow, net income, and overall profitability, and manage resources and budgets accordingly.

1. Revenue: The net sales or revenues for the accounting period are represented by this entry. It covers both operational and non-operating revenue generated by the entity’s core business activity.

2. Gross Profit: Net revenue minus sales expenses equals gross profit, often known as gross income or gross margin.

3. Operating Expenditures: Administrative, general, and selling expenses that are associated to running a firm for a set period of time are referred to as operating expenses. This covers rent, wages, utilities, and any other costs associated with running the firm. 

4. Earnings before taxes, depreciation, interest, and authorization are referred to as operating income. To determine operational income, subtract operating expenditures from gross profit.

Basic concepts of Profit & Loss

• Cost Price (CP): Cost amount refers to the price paid to purchase a product. The cost price includes all overhead costs (transportation, taxes, and so on).

• Selling Price (SP): The selling price is the amount of money that is eventually received for the goods, or the price at which it is finally sold.

• Profit: The difference between the selling price and the cost price is known as profit.

                profit=selling price-cost price

• Loss: Loss is defined as the difference between the selling price and the cost price.

LOSS = COST PRICE – SELLING PRICE.

Formulas of Profit and Loss 

Now, if the selling price of a thing is more than its cost price, the transaction is profitable. In other words, a profit is made when a thing is sold for a greater price than it was purchased for. This is how the profit formula is created.

Profit = Selling Price – Cost Price

Similarly, the loss formula may be calculated using the selling and cost prices. Simply put, if a thing is sold for less than the amount at which it was purchased, the transaction is considered a loss.

Loss = Cost Price – Selling Price 

In some cases, after the profit or loss is calculated, it is converted in the form of a percentage. 

• Profit percentage P%=(profitcost price )×100

• Loss precentageL%=Losscost price100

• S.P=100+P%100×CPifSP>CP

• S.P=100-L%100×CPifSP<CP

• C.P={100100+P%}×SP(ifSP>CP)

• C.P={100100-L%}×SP(ifSP<CP)

Example of Profit and Loss

The profit and loss statements that follow are some of the most often reported by publicly traded firms. The profit and loss statement is a financial report that summarises the company’s revenues and costs over a period of time in order to calculate profit or loss for that period. In other words, a profit and loss statement assists in determining the activity of a firm over a period of time, which can be monthly, quarterly, or yearly, depending on the needs of the consumers of the statement.

The Profit and Loss statement is also known as an income statement, a P&L account, a statement of revenues and costs, and so on. A firm’s profit and loss statement are critical because it determines whether the company is profitable or not, which is the primary goal or purpose of any corporation.

Example 1: A fabric dealer purchased 35 shirts for Rs 280 apiece. He got Rs. 308 for each of them. Calculate his profit percentage.

Sol: The profit % is the same for each unit and for all units. As a result, the computations should only be done for one unit.

CP equals Rs. 280. Rs. 308 = SP

308 – 280 = Rs. 28 profit For this, you must use the profit percentage calculation.

100 x 28/280 = 10% profit percentage.

Example 2: A product is sold for Rs 2400, with a 25% profit. If it had been sold for Rs 1800, what would have been the real profit or loss?

Sol: Let us begin by determining the cost of the item. 2400 C.P. x 100/125 = 1920

New selling price = Rs. 1800; loss = 1920 – 1800 = 120; loss percentage = 100; 120/1920 = 6.25 percent; loss percentage = 100.

Example 3: A retail fruit trader purchases a score of pineapples for Rs 200 and sells a dozen for Rs 156. Did he profit or loss in the deal, and what percentage of profit or loss did he make?

Sol: C.P = Rs. 220 per score; C.P/Pineapple = 200/20 = 10 (Note: 1 score equals 20 numbers.)

S.P. = Rs.156 per dozen 156/12 = 13 S.P/Pineapple Profit = Rs. 3/10 = 30% Profit = Rs. 3/10 = 30%.

Conclusion

A profit and loss summary is a financial statement that shows how much money a firm makes and loses over time by highlighting sales, expenditures, and expenses. They are often produced weekly, quarterly, or annually.

A crucial function in a corporation is the analysis of loss and profit made in a commercial transaction. The loss and profit in a firm may be computed by subtracting total spending from total income. The balance sheet and profit and loss statements are the major financial statements in a company’s statutory accounts. The profit and loss account requires the opening stock at the start of the period, the entire value of purchase invoices received for the period, the rate of equipment depreciation, and the value of items that have been paid but not received the full value.