Updated July 13, 2023
Definition of Profit and Loss Statement Format
The profit and Loss Statement is the report that shows the results of the organization throughout the period, i.e., it reflects the profit or loss earned during the period by reflecting all the incomes, revenue, and expenses for the period to present the true and fair view of the accounts and to make the readers understand the performance of the organization.
This article provides an outline for the profit and loss statement format.
Explanation
The profit and loss statement is to be presented in the prescribed format. The format for the presentation is almost the same, but it might differ from entity to entity. For sole proprietorships, the format is quite simple, whereas for companies, the format is a little complex. Still, the ultimate purpose of the presentation is to show the results for the period, i.e., whether the organization has earned profits or suffered a loss, along with the details of incomes and expenses for the period so that the reader of the statement could clearly understand and interpret the statement correctly. The statement is prepared per the accounting policies and principles as per the governing law of that country. All the expenses and revenue recognition are done per the accounting policies and the accounting principles required to be followed for preparing the profit and loss statement.
Contents of Profit and Loss Statement Format
Contents of the Profit and Loss Format are explained below:
- Sales/ Revenue/ Gross Receipts: In the case of a Trading Organization, the word gross Sales is to be used, and it reflects the sales made during the year. And in the case of service organizations, the word Gross receipts/ Revenue is used, which reflects the value of services provided during the year. It is reflected as gross revenue per the bills raised for the period, less refundable taxes, and fewer returns. Sales return and allowance are deducted from this gross sale to arrive at the net sales figure.
- Operating Cost: Operating Cost includes the cost of goods sold, administration expenses, selling and distribution expenses, depreciation and amortization expenses, and interest expenses to be shown. The cost of goods sold includes opening stock, add purchases add, direct and manufacturing expenses, and less closing stock. Direct expenses include carriage inward, direct labor costs, etc.
- Administration Expenses: Administration expenses include salaries and wages to the staff and laborers, salaries to the officers and managers, legal and professional fees paid, staff welfare expenses, Printing and Stationery, and all other expenses related to the administration of the organization are included in administration cost.
- Selling and Distribution Expenses: Selling and Distribution expenses include Sales commission, packing and packaging expenses, carriage outwards, telephone and internet expenses, etc. All the expenses related to sales fall under underselling and distribution.
- Depreciation and Amortization: Depreciation and Amortization expenses are non-cash operating expenses. Depreciation is the wear and tear in the value of an asset. In contrast, amortization is written off of intangibles like goodwill, etc., and all other expenses, like written off of pre-operative expenses, etc., fall under the depreciation and amortization expenses. Therefore, depreciation and amortization expense saves the tax of the organization.
- Interest and Borrowing cost: Interest and Borrowing cost include the interest paid on a loan taken for business; it includes interest paid to financial and non-financial institutions. At the same time, borrowing costs include the fees charged by the bank or the agent for sanctioning the loan. All the other cost related to borrowings for the purpose of business falls under the interest and borrowing expenses.
- Other Expenses: All expenses other than the administration, selling, borrowing, and amortization expenses fall under the other expenses category, including repairs and maintenance, etc.
- Income from Operations: Income from operations includes all the direct income related to business that falls under income from operations, including discounts received, sale of scrap, etc.
- Non-operational income or indirect income: Non-operational income includes interest on fixed deposits, income by way of dividend, asset amortization, profit on revaluation, profit or loss on sale of securities, etc. non-operation income may be cash or non-cash incomes/losses. Losses like asset amortization are like non-cash losses, which saves the organization’s tax.
- Income Tax: Tax expense for the current period also falls in the profit and loss statement to determine the true and fair view. Income tax includes taxes due and paid related to the organization’s business.
- Net Profit: Net Profit is all incomes, fewer expenses, amortization, losses, and taxes. All which remains, i.e., excess of expenses over income, is nothing but the organization’s net profit.
Example of Profit and Loss Statement Format
Examples of profit and loss statement format are given below:
| Particulars | Amount ($) | Amount ($) | |
| 1 | Sales/ Gross Receipts | ||
| 2 | Less: Sales Discount | ||
| Sales Returns and allowances | |||
| 3 | Net Sales Revenue (1 – 2) | ||
| 4 | Cost of Goods Sold | ||
| Opening Stock | |||
| Add: Purchases | |||
| Add: Direct Expenses | |||
| Less: Closing Stock | |||
| 5 | Gross Profit (3 – 4) | ||
| 6 | Administrative Expenses | ||
| Officers’ salaries | |||
| Other staff Salaries | |||
| Legal and Professional services | |||
| Insurance expense | |||
| Stationery, Supplies, and Postage | |||
| Miscellaneous office expenses | |||
| 7 | Selling Expenses | ||
| Sales Salaries and Commission | |||
| Sales Office Salaries | |||
| Travel and Entertainment | |||
| Advertising Expense | |||
| Carriage outward | |||
| Postage and Stationery | |||
| Telephone and Internet Expenses | |||
| Other Selling Expense | |||
| 8 | Depreciation and Amortization expenses | ||
| Depreciation on Building | |||
| Depreciation on Furniture | |||
| Depreciation on Vehicles | |||
| Depreciation on Plant and Machinery | |||
| Amortization expenses | |||
| Amortization of Goodwill | |||
| Write off of underwriting commission. | |||
| Write off Pre-operating expenses. | |||
| 9 | Interest and Borrowing Expenses | ||
| Legal Charges were paid for the loan. | |||
| Loan Processing Fees | |||
| Interest on Loan | |||
| 10 | Other Expenses | ||
| Repairs and Maintenance | |||
| Cleaning Expenses | |||
| 11 | Income from operations | ||
| Discounts Received | |||
| Grants Received | |||
| 12 | Non-Operating Income | ||
| Dividend Revenue | |||
| Rental Revenue | |||
| Gain on sale of Investments | |||
| 13 | Income before Income Tax [5- (6+7+8+9+10) + 11 + 12] | ||
| 14 | Income Tax | ||
| Net Income/Profit for the year (13 – 14) |
Conclusion
The profit and loss statement shows the organization’s results, i.e., profit or loss for the period. The statement can be presented as a detailed statement or a summary statement. The statement prescribes the details about all the incomes and expenses earned during the period. The purpose of a presentation is to make the users understand and know about the working and results of the organization to decide on investment or further expansion and diversification of the business.
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