Definition of Profit and Loss Statement Format
This article provides an outline for the profit and loss statement format. Profit and Loss Statement is the report that shows the results of the organization throughout the period, i.e. it reflects the profit or loss earned during the period by reflecting all the incomes, revenue and expenses for the period so as to present the true and fair view of the accounts and to make the readers understand the performance of the organization.
Explanation
The profit and loss statement is to be presented in the prescribed format. Almost the format for presentation is the same, but it might differ from entity to entity. For sole proprietorship, the format is quite simple, whereas, for companies, the format is a little complex, but the ultimate purpose of the presentation is to show the results for the period, i.e. whether the organization has earned the profits or suffered the loss along with the details of incomes and expenses for the period so that the reader of the statement could clearly understand and interpret the statement correctly. The statement is prepared as per the accounting policies and principles as per the governing law of that country. All the expenses and revenue recognition are done as per the accounting policies and the accounting principles required to be followed for the preparation of the profit and loss statement.
Contents of Profit and Loss Statement Format
Contents of Profit and Loss Format are explained below:
- Sales/ Revenue/ Gross Receipts: In the case of a Trading Organization, the word gross Sales is to be used, and it reflects the sales made during the year. And in the case of service organizations, the word Gross receipts/ Revenue is used, which reflects the value of services provided during the year. It is reflected as gross revenue as per the bills raised for the period less refundable taxes fewer returns. Sales return, and sales allowance are deducted from this gross sale to arrive at the net sales figure.
- Operating Cost: Operating Cost is the includes the cost of goods sold, administration expenses, selling and distribution expenses, depreciation and amortization expenses and interest expense are to be shown. Cost of goods sold includes opening stock add purchases add direct and manufacturing expenses less closing stock. Direct expenses include carriage inward, direct labour cost etc.
- Administration Expenses: Administration expenses includes salaries and wages to the staff and laborers, salaries to the officers and managers, legal and professional fees paid, staff welfare expenses, Printing and Stationery and all other expenses which are related to the administration of the organization are included in administration cost.
- Selling and Distribution Expenses: Selling and Distribution expenses include Sales commission, packing and packaging expenses, carriage outwards, telephone and internet expenses etc., all the expenses which related to sales falls underselling and distribution expenses.
- Depreciation and Amortization: Depreciation and Amortization expenses are non-cash operating expenses. Depreciation is the wear and tear in the value of an asset, whereas amortization is writing off of intangibles like goodwill etc. and all other expenses like written off of pre-operative expenses etc., falls under the depreciation and amortization expenses. Therefore, depreciation and amortization expense saves the tax of the organization.
- Interest and Borrowing cost: Interest and Borrowing cost include the interest paid on a loan taken for the purpose of business; it includes interest paid to financial as well as non-financial institutions. Whereas borrowing costs include the fees charged by the bank or the agent for sanctioning of the loan. All the other cost related to borrowings for the purpose of business falls under the interest and borrowing expenses.
- Other Expenses: All expenses other than the administration, selling, borrowing, and amortization expenses fall under the other expenses category, and it includes repairs and maintenance etc.
- Income from Operations: Income from operations includes all the direct income related to business that falls under income from operations, including discounts received, sale of scrap, etc.
- Non-operational income or indirect income: Non-operational income includes interest on fixed deposits, income by way of dividend, asset amortization, profit on revaluation, profit or loss on sale of securities etc. non-operation income may be cash or non-cash incomes/losses. Losses like asset amortization are in the nature of non-cash losses, which saves the tax of the organization.
- Income Tax: Tax expense for the current period also falls in the profit and loss statement so as to determine the true and fair view. Income tax includes taxes due and paid related to the business of the organization.
- Net Profit: Net Profit is the all incomes fewer expenses, amortization, losses and taxes. All which remains, i.e., excess of expenses over income, is nothing but the organisation’s net profit.
Example of Profit and Loss Statement Format
Examples of profit and loss statement format are given below:
| Particulars | Amount ($) | Amount ($) | |
| 1 | Sales/ Gross Receipts | ||
| 2 | Less: Sales Discount | ||
| Sales Returns and allowances | |||
| 3 | Net Sales Revenue (1 – 2) | ||
| 4 | Cost of Goods Sold | ||
| Opening Stock | |||
| Add: Purchases | |||
| Add: Direct Expenses | |||
| Less: Closing Stock | |||
| 5 | Gross Profit (3 – 4) | ||
| 6 | Administrative Expenses | ||
| Officers’ salaries | |||
| Other staff Salaries | |||
| Legal and Professional services | |||
| Insurance expense | |||
| Stationery, Supplies and Postage | |||
| Miscellaneous office expenses | |||
| 7 | Selling Expenses | ||
| Sales Salaries and Commission | |||
| Sales Office Salaries | |||
| Travel and Entertainment | |||
| Advertising Expense | |||
| Carriage outward | |||
| Postage and Stationery | |||
| Telephone and Internet Expense | |||
| Other Selling Expense | |||
| 8 | Depreciation and Amortization expenses | ||
| Depreciation on Building | |||
| Depreciation on Furniture | |||
| Depreciation on Vehicles | |||
| Depreciation on Plant and Machinery | |||
| Amortization expenses | |||
| Amortization of Goodwill | |||
| Write off of underwriting commission. | |||
| Write off of Pre-operating expenses. | |||
| 9 | Interest and Borrowing Expenses | ||
| Legal Charges paid for the loan. | |||
| Loan Processing Fees | |||
| Interest on Loan | |||
| 10 | Other Expenses | ||
| Repairs and Maintenance | |||
| Cleaning Expenses | |||
| 11 | Income from operations | ||
| Discounts Received | |||
| Grants Received | |||
| 12 | Non-Operating Income | ||
| Dividend Revenue | |||
| Rental Revenue | |||
| Gain on sale of Investments | |||
| 13 | Income before Income Tax [5- (6+7+8+9+10) + 11 + 12] | ||
| 14 | Income Tax | ||
| Net Income/Profit for the year (13 – 14) |
Conclusion
Profit and Loss Statement is the statement that shows the organisation’s results, i.e. profit or loss for the period. The statement can be presented as a detailed statement as well as the summary statement. Statement prescribes the details about all the incomes and expenses earned during the period. The purpose of a presentation is to make the users understand and know about the working and results of the organization so as to decide for investment or further expansion and diversification of the business.
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This is a guide to Profit and Loss Statement Format. Here we also discuss the definition and contents of profit and loss format along with an explanation. You may also have a look at the following articles to learn more –
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