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Profit & Loss Sheet Preparation

What is a Profit & Loss Statement?

A profit and loss statement measures a company’s sales and expenses during a specified period of time. The purpose of a profit and loss statement is to total all sources of revenue and subtract all expenses related to the revenue. It shows a company’s financial progress during the time period being examined.

How do we prepare a Profit & Loss Statement?

In order to prepare a Profit & Loss statement for your business, we calculate Net Sales and Cost of Goods Sold using information from your Books.

Net Sales

Net Sales is a total of all your sales minus any discounts.

Example: Suppose that your Books lists Total Sales at $100,000 and $10,000 in discounts given to customers. Also, your business paid $2,000 in Credit Card Fees on sales. Your Net Sales would be $100,000 – $10,000 – $2,000 = $88,000.

Cost of Goods Sold

It is the total amount your company spent to buy or make the goods or services that you sold.

We calculate this cost by adding your business purchases to the opening inventory and then deducting the ending inventory (inventory that can be sold and/or is on shelves) from it.

The following is a basic Cost of Goods Sold calculation:

  • Goods Available for Sale = Opening Inventory + Purchases
  • Cost of Goods Sold = Goods Available for Sale – Ending Inventory

Operating Expenses

An Operating Expense is a day-to-day business expense. Following are some of Operating Expenses, your business might face:

  • Advertising
  • Bank Service Charges
  • Insurance Expenses
  • Interest Expense
  • Legal & Accounting Fees
  • Office Expenses
  • Payroll Taxes Expenses
  • Postage Expenses
  • Rent Expenses
  • Salaries
  • Supplies
  • Telephone Expenses
  • Utilities

Gross Profit vs. Net Profit

Gross Profit = Net Sales – Cost of Goods Sold

Net Profit = Gross Profit – Operating Expenses

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