How P&L Statement Work?

The functionality of a profit and Loss (P&L) Statement lies in its ability to present a concise summary of a company’s financial performance over a specific period. The statement operates on the basic formula:

Net Profit (or Loss) = Revenue – Expenses

• Here, revenue includes all sources of income, while expenses comprise costs associated with producing goods or services, operating the business, interest, and taxes.
• The gross profit is obtained by subtracting the cost of goods sold (COGS) from sale revenue, providing a measure of the core profitability of the business.

Gross Profit (or Loss) = Sales – Cost of Goods Sold (COGS)

• Operating income is then calculated by subtracting operating expenses from gross profit. it is also known as ‘Earning Before Interest and Tax or EBIT’.

EBIT = Gross Profit – Operting Expense

• The final step involves deducting interest and taxes from operating income to arrive at the net profit or loss.

Net Profit = EBIT – Inerest – Taxes – Other Non-Operating Expenses

Example 1:

From the following particulars, prepare a Profit and Loss Account for the year ending 2023,

Solution:

Example 2:

From the following figures calculate Net Profit,

Solution:

Example 3:

From the following details prepare Profit and Loss Account for year ended 31st March, 2023. Closing Stock ₹ 28,000.

Solution:

Example 4:

Prepare Profit and Loss Statement from following information:

Solution:

Example 5:

Following is a Trial Balance of Amit Pvt Ltd. as of 31st March,2023. Prepare a Statement of Profit and Loss after making the necessary adjustments given:

Adjustments:

1. Closing Inventory valued at ₹80,000.

2. Provide 5% on Trade Receivables for doubtful debts and also provide for 2% for discount on Trade Receivables and Trade Payables.

3. One month rent @ ₹3,600 p.a was due on 31st March, 2023.

4. Insurance was paid on 1st October, 2022 to run for one year ₹4,000.

5. Write off 1/3rd of Share Issue Expense.

Solution:

Notes to Accounts:

A Profit and Loss (P&L) Statement is a fundamental financial document that provides a comprehensive overview of a business’s revenues, costs, and expenses during a specific period, usually a fiscal quarter or year. It serves as a crucial tool for assessing the financial health and performance of a company, offering insights into its ability to generate profits and sustain operations.

Geeky Takeaways:

• Profit and Loss Statement is a financial statement that reports the financial position of an organization.
• Statement of Profit and Loss shows the revenue earned and cost incurred by an organization during a specific period.
• Excessive revenue earned over the expenses is termed as profit and excessive cost incurred over the revenue indicates loss.