Profit & Loss Statement

In previous tutorials we learnt about revenue & expense accounts which consist a business's primary goods/services activities. The business profit and loss is measured by calculating the business revenue less business expenses. Whilst one may conclude this is merely adding both in total and subtracting expenses from revenue to define the profit or loss, its not quite that simple in accounting terms. There are many types of revenue and expense within a business structure that facilitate overall profit and loss.

A profit and loss statement can be referred as:

• Income Statement,
• Statement of Financial Performance, and
• Profit and Loss Statement.

There are two types of profit and/or loss that are calculated, being:

• Gross profit/loss
• Net profit/loss

Calculating Gross Profit

Gross profit is calculated from the sale of goods less cost of goods sold. This typically entails your "sales", "purchases" and "stock on hand" accounts. Gross profit does not encompasses your operating expenses or minor revenue. Each business is different and your bookkeeper or accountant can provide specifics for your business type and structure.

The example used here is for the month of January. To determine gross profit you would use your (sales less (purchases less stock on hand)). Example follows:

Calculating Net Profit

To determine your net profit you would now add all other revenue less expenses to determine your business net profit or loss, as example follows:

Download in PDF format:

The first figure column works as a sub-total column, with the total figures entered in the second column. Net profit and/or loss is the figure transferred to your owners equity account which would now be present upon your balance sheet. A profit and loss statement is often shown in conjunction with a balance sheet for a total business snapshot.