Profit and Loss

Profit and loss are something we have learned from childhood. We always wanted more of everything we liked. On a bigger scale of profit and loss for a shopkeeper, if the selling price is comparatively more than the cost price of an item, then it is called a profit and if the cost price is comparatively more than the selling price, it becomes a loss. Let us discuss profit and loss concepts and tricks and tips to solve problems based on it. 

Profit(P)

The amount gained by selling a product with a selling price is comparatively more than its cost price.

Loss(L)

The amount the seller incurs after selling the product at a lower price than its cost price is mentioned as a loss.

Cost Price (CP)

The amount paid for a product or commodity by the user to purchase it is called a cost price. Also, it is denoted as CP. This cost price is further described into two different categories:

1. Fixed Cost: The fixed cost is constant. It doesn’t change in any situation.
2. Variable Cost: It is not fixed. It can vary depending upon the number of units.

Selling Price (SP)

The amount at which the product is sold to the user is called the Selling Price. SP usually denotes it. Also, sometimes called out as a sale price.

Marked Price Formula (MP)

Shopkeepers label market Price Formula to offer a discount to the customers so that even after giving a discount, the shopkeeper is earning a good profit.

Discount = Marked Price – Selling Price

And 

Discount Percentage = (Discount/Marked price) x 100

Profit and Loss Formulas

Now let’s look at the profit formula and the loss formula.

The profit or gain and loss equal the difference between the selling price and the cost price.

Profit or gain is positive and loss is harmful.

In other words,

Profit or Gain = Selling price – Cost Price

Loss = Cost Price – Selling Price

The formula for the profit or gain and loss percentage is:

Profit percentage = (Profit /Cost Price) x 100

Loss percentage = (Loss / Cost price) x 100 

Profit and Loss Tricks

You have now learned how to calculate profit and loss and the percentage of each of them. Now let us know some tricks or formulas to solve mathematical problems based on gain and loss

Profit, P = SP – CP; SP>CP

Loss, L = CP – SP; CP>SP

P% = (P/CP) * 100

L% = (L/CP) * 100

SP = {(100 + P%)/100} x*CP

SP = {(100 – L%)/100} * CP

CP = {100/(100 + P%)} * SP

CP = {100/(100 – L%)} *SP

Discount = MP – SP

SP = MP -Discount

For false weight, profit percentage will be P% = (True weight – false weight/ false weight) * 100.

When there are two successful profits, say m% and n%, then the net percentage profit equals (m+n+mn)/100

When the profit is m% and loss is n%, then the net % profit or loss will be: (m-n-mn)/100

If a product is sold at m% profit and then again sold at n% profit, then the actual cost price of the product will be:

CP = [100 *100 * P/(100+m)(100+n)].

In case of loss, 

CP = [100 * 100 * P/(100-m)(100-n)]

If P% and L% are equal then, 

P = L and %loss = P2/100

What Is a Profit and Loss (P&L) Statement?

The term profit and loss (P&L) statement refers to a financial statement that summarizes the revenues, costs, and expenses done during a specified period, which is usually a quarter or fiscal year. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both. These statements are often presented on a cash or accrual basis.

• The profit and loss statement is a financial statement that summarizes the revenues, costs, and expenses done during a specified period.
• The P&L statement is one of three financial statements every public company issues quarterly and annually, along with the balance sheet and the cash flow statement.
• When used together, the P&L statement, balance sheet, and cash flow statement provide an in-depth look at a company’s financial performance together.
• Statements are constructed using the cash or accrual method for accounting.
• It is essential to compare P&L statements from different accounting periods, as any changes over time become more meaningful than the numbers themselves.

Types of Profit and Loss (P&L) Statements

A P&L statement is prepared in one of two ways. These different methods are the cash method and the accrual method.

Cash Method

The cash method, also known as the cash accounting method, is only used when cash goes in or out of business. This is a straightforward method that only accounts for cash received or paid. A business records transactions as revenue whenever cash is received and liabilities whenever cash is used to pay any bills or liabilities. This method is commonly used by smaller companies and people who want to manage their finances.

Accrual Method

The accrual accounting method records revenue as it is earned. This means that a company using the accrual method accounts for money that it expects to receive in the future. For instance, a company that delivers a product or service to its customer records the revenue on its P&L statement, even though it hasn’t yet received payment. In the same way, liabilities are accounted for even when the company has no expenses yet.

What does stop loss and take profit mean?

A stop-loss (SL) is a price limit declared by a trader. When that price limit is reached, the open position will close to prevent further losses. 

A take profit (TP) works in the same way – it automatically closes a position once a specific pre-declared profit target is reached to lock in profits.

Conclusion

A P Gouthey, who once said, “To get profit without risk, experience without danger, and reward without work, is as impossible as it is to live without being born.” We have so far discussed the terms profit and loss. We also discussed profit and loss statement format, profit and loss account format, profit and loss statement for small businesses and what stops loss and takes profit to mean.