In the world of business and trade, the term profit and loss account is familiar to the ears. The income statement in accounting is one of the important things in the accounting period.
This article discusses the meaning of profit and loss, how to compile it, how to calculate it, how to make a profit and loss statement for a trading company, as well as examples of compiling it.
Then you also have to know that if you understand these financial statements you can understand how the financial conditions in your company are.
Definition of Income Statement is
The income statement or profit and loss statement is one part of the company’s financial statements in a certain accounting period that contains the company’s income and expenses, then generates a net profit / loss.
This report consists of revenues during the current period and expenses, both operating and non-operating expenses during the current period.
An income statement statement helps business owners decide whether they can make a profit by increasing revenue, by reducing costs, or both.
Therefore, this report is one of the components that must be included in the books along with the balance sheet and cash flow statement.
Purpose of Making an Income Statement
The purposes of making this report for the company include:
- Calculation of the amount of corporate tax.
- Check and evaluate profit at any time.
- Assessing company efficiency based on business value.
The Main Elements of Making a Trading Company Profit and Loss Statement
The elements that must be arranged in the way of preparing the income statement are:
- Income. Income is an increase in the company’s assets or inflows from operational activities. Revenue can be calculated by: Total Gross Income – Discounts, Returns, Other Allowances.
- Expenses. Expenses are the use of assets or the outflow or incurrence of liabilities (liabilities) in a period due to the production of goods or shipments.
- Profit. Profit is the increase in equity due to transactions or owner investments or income.
- Loss. Loss is a decrease in equity due to transactions or expenses and distributions to owners.
Various Profits in the Income Statement
Before you learn how to calculate profit and loss and create a report, you need to know what profits are included in this report.
| Gross profit | A measure of direct revenue from the company’s sales in an accounting period. |
| Operating profit | The difference between sales, costs and operating expenses of the company. |
| Profit before tax | Profit before income tax based on SAK. |
| Net profit | Net sales against HPP less operating expenses and income tax. |
| Current Operating Profit | Business activities in the current period after taxes and interest. Also called earnings before extraordinary items. |
Preparation for Preparing Income Statement
You can follow these steps to:
- Make transaction journals. The order is: revenue, expense and derivative accounts.
- Then recorded in the ledger.
- Reports are prepared after the trial balance and adjusting journal entries, or after the work sheet or working papers.
- Such as income and expenses in the working paper. This is because there are columns that come from the working paper.
- Expenses are taken from the balance sheet column, while profit and loss is the difference between total revenues and total expenses.
- When income is greater than expenses, there will be profit. While the total income is smaller than the expenses, it is a loss.
Example of the Format for Making Profit and Loss for a Trading and Service Company (Income Statement)
There are 2 ways to make a trading company profit and loss report, namely by using a single step or multiple step format .
The following is an example and format for making an income statement that can be followed:
Example of a Single Step Report
Total revenue and profit and operating activities are placed at the beginning.
Then followed by expenses and losses in operational activities.
Operating profit = Difference between Revenue and Total Profit and Expense and Loss
The following is an example of making a service company report with the single step method .
ABCD, CO
Income statement
March 2021 period
| Income | ||
| Net sales | $ 800,000,000 | |
| Rental Income | $ 20,000,000 | |
| Total income | $ 780,000,000 | |
| Burden | ||
| Cost of goods sold | $ 300,000,000 | |
| Selling expenses | $ 15,000,000 | |
| Administrative Expenses | $ 10,000,000 | |
| Interest expense | $ 5.000.000 | |
| Net Other Expenses | $ 5.000.000 | |
| Total Load | $ 335,000,000 | |
| Profit before tax | $ 445,000,000 | |
| Tax | $ 111.150.000 | |
| Net profit | $ 333,750,000 |
Example of Multistep Report
There is a separation between operational and non-operational transactions. Then compare costs and expenses with revenues.
Operating Profit = Visible Difference Between Ordinary and Unusual Activities (Incidental)
The following is an example of making an income statement for a trading company using the multistep method .
XYZE, CO
Profit and Loss Statement
April 2020 period
| Sales revenue | ||
| Net sales | $ 800,000,000 | |
| Sales Returns and Price Reductions | $ 40,000,000 | |
| Sales Discount | $ 20,000,000 | |
| Net Sales Revenue | $ 740.000.000 | |
| Cost of goods sold | ||
| Initial inventory | $ 15,000,000 | |
| Purchase | $ 300,000,000 | |
| Bankrupt Burden | $ 10,000,000 | |
| Items Available for Sale | $ 325,000,000 | |
| Ending Supplies | $ 25,000,000 | |
| Cost of goods sold | $ 300,000,000 | |
| Operating profit | $ 440.000.000 | |
| Operating Expenses | ||
| Selling expenses | ||
| Sales Salary | $ 5.000.000 | |
| Advertising expenses | $ 5.000.000 | |
| advanced | ||
| Other Selling Expenses | $ 5.000.000 | |
| General Administration Expenses | ||
| Employee Salary and Office Section | $ 10,000,000 | |
| Insurance Expenses | $ 1,000,000 | |
| Depreciation and Amortization Expense | $ 4,000,000 | |
| Uncollectible Accounts Expense | $ 2,000,000 | |
| Other General Expenses | $ 3,000,000 | |
| Total Administrative Expenses | $ 35.000.000 | |
| Operating profit | $ 405,000,000 | |
| Other Income and Benefits | ||
| Interest income | $ 15,000,000 | |
| Profit on Investment Sales | $ 20,000,000 | |
| Other Expenses and Losses | ||
| Interest expense | $ 5.000.000 | |
| Losses on Equipment Sales | $ 20,000,000 | |
| Profit Before Income Tax | $ 433,000,000 | |
| Income tax | $ 108.250.000 | |
| Net profit | $ 324,750,000 |
Thus the discussion of how and types of financial statements for companies that need to be known.
To make this process easier, you can use accounting and finance software.
Accounting software can list individual transactions and the total money you earn (income) and money spent (expenses).
The accounting software also provide other reports such as balance sheets, cash flows, and other features such as bank reconciliation summaries, inventory applications, changes in equity and automated trial balances.
In addition to financial reports, the online bookkeeping feature of the accounting software is also very helpful for business owners in recording all transactions that occur.
