The Profit and Loss Statement

Ever heard of the term "profit and loss statement"? I'm guessing you already have once or twice but since you did not care too much, you probably shrugged it off. Well that's what I am going to explain to you in this post.

In business math, you'd have to master all the basics so you could survive. If you survived elementary and high school math then you're safe my friend. All you need to do is listen to your professor CAREFULLY.

So first things, first, what's a profit and loss statement?

"The profit and loss statement is a summary of the financial performance of a business over time (monthly, quarterly or annually is most common). It reflects the past performance of the business and is the report most often used by small business owners to track how their business is performing.- http://www.smallbusiness.wa.gov.au/understanding-profit-loss-statements/"

In other words, this is done to know if you're business is booming or not, you use this to know how much money you made in your business. You may do this every month, so let's get started!

Anybody who starts a business wants one thing: PROFIT. It is the amount of your sales that's greater than the cost of your goods and operating expenses. It is your GAIN or your so called MARGIN.

To know how much you gained throughout your hardwork, first you need to know how much you bought the materials for your products. This may include your fare and food expenses when you bought them. In other words, your INVESTMENT and we will call this amount, the COST OF GOODS.

Now once you've sold loads of your goods, you now have what you call your GROSS SALES. Don't get too excited it's simply how much money you received for selling the goods, it's not your profit yet!

1. To get your profit, first, you have to deduct all refunds from your gross sales so you could get your NET SALES.

GROSS SALES - REFUNDS and ALLOWANCES = NET SALES

2. then you deduct your cost of goods sold from your net sales to know GROSS PROFIT. Don't get cocky it's not your whole profit yet! We still have ne more step!

3. From your gross profit, you have to deduct all your operating expenses which includes your bills, rental fees, wages and other cost doing business.

which now makes the formula:

   GROSS SALES

-SALES RETURN and ALLOWANCES

NET SALES

- COST OF GOODS

 GROSS PROFIT

- OPERATING EXPENSES

NET PROFIT

NOW THERE GOES YOUR NET PROFIT! I HOPE YOUR HAPPY WITH THE RESULTS!

Now you can make your simple profit and loss statement like this:

Gross Sales P896, 954.00

less: refunds P25, 520.49

a. Net Sales P871, 433.51

less: cost of goods  P577, 320.40

b. Gross Profit P294, 113.11

less: operating expenses

salaries & wages P20,185.98

rent P9,000.00

light and water bills P10,000.00

miscellaneous P10,100.00

Total Operating Expenses P49, 285.98

c. Net Profit P244, 827.13

Profit and loss statements may look complicated to big companies but to simple entrepreneurs, this is the basics of it! Enjoy!


Checked by Prof. Crisencio Paner