Profit & Loss Statement Calculation Guide

Understanding P&L Formula

Basic P&L Equation

Net Profit/Loss = Total Income - Total Expenses

Gross Profit Calculation

Gross Profit = Net Sales - Cost of Goods Sold (COGS)

Net Profit Calculation

Net Profit = Gross Profit + Other Income - Operating Expenses - Other Expenses

INCOME SIDE (CREDIT SIDE)

1. SALES ACCOUNTS

Direct Sales

Sales Account (SALE00001)

Opening Balance: 0.00
Total Credit (Sales): 800,000.00
Less: Total Debit: 0.00
─────────────────────────────────
Net Sales: 800,000.00

Sales Returns (Deduction from Sales)

Sales Return (SLRT00001)

Opening Balance: 0.00
Total Debit: 20,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Sales Returns: 20,000.00
Net Sales Calculation

Gross Sales: 800,000.00

Less: Sales Returns: (20,000.00)
─────────────────────────────────
Net Sales: 780,000.00
═════════════════════════════════

2. OTHER INCOME

Interest Income

Interest Received (INTR00001)

Opening Balance: 0.00
Total Credit: 15,000.00
Less: Total Debit: 0.00
─────────────────────────────────
Interest Income: 15,000.00

Discount Received

Discount Received (DISC00001)

Opening Balance: 0.00
Total Credit: 5,000.00
Less: Total Debit: 0.00
─────────────────────────────────
Discount Received: 5,000.00

Miscellaneous Income

Miscellaneous Income (MISC00001)

Opening Balance: 0.00
Total Credit: 3,000.00
Less: Total Debit: 0.00
─────────────────────────────────
Misc Income: 3,000.00

TOTAL INCOME CALCULATION

Net Sales: 780,000.00

 Interest Income: 15,000.00
Discount Received: 5,000.00
Miscellaneous Income: 3,000.00
──────────────────────────────────
TOTAL INCOME: 803,000.00
══════════════════════════════════

EXPENSES SIDE (DEBIT SIDE)

3. COST OF GOODS SOLD (COGS)

Opening Stock

Opening Stock: 40,000.00

Purchases

Purchase Account (PURCH00001)

Opening Balance: 0.00
Total Debit: 450,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Gross Purchases: 450,000.00

Purchase Returns (Deduction)

Purchase Return (PRRT00001)

Opening Balance: 0.00
Total Credit: 10,000.00
Less: Total Debit: 0.00
─────────────────────────────────
Purchase Returns: 10,000.00

Net Purchases
 Gross Purchases: 450,000.00
Less: Purchase Returns: (10,000.00)
─────────────────────────────────
Net Purchases: 440,000.00

Direct Expenses

Freight Inward (FRGT00001)

Opening Balance: 0.00
Total Debit: 12,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Freight Inward: 12,000.00

Carriage Inward (CARR00001)

Opening Balance: 0.00
Total Debit: 3,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Carriage Inward: 3,000.00

Closing Stock

Closing Stock: 50,000.00

COGS Calculation

Opening Stock: 40,000.00

Add: Net Purchases: 440,000.00
Add: Freight Inward: 12,000.00
Add: Carriage Inward: 3,000.00
─────────────────────────────────────────
495,000.00
Less: Closing Stock: (50,000.00)
─────────────────────────────────────────
COST OF GOODS SOLD: 445,000.00
═════════════════════════════════════════
GROSS PROFIT CALCULATION

Net Sales: 780,000.00

Less: Cost of Goods Sold: (445,000.00)
──────────────────────────────────────────
GROSS PROFIT: 335,000.00
══════════════════════════════════════════

4. OPERATING EXPENSES

Administrative Expenses

Salaries & Wages

Salaries (SLRY00001)
Opening Balance: 0.00
Total Debit: 120,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Salaries Expense: 120,000.00

Rent

Rent Expense (RENT00001)

Opening Balance: 0.00
Total Debit: 36,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Rent Expense: 36,000.00

Electricity

Electricity Expense (ELEC00001)

Opening Balance: 0.00
Total Debit: 18,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Electricity Expense: 18,000.00

Telephone & Internet

 Telephone Expense (TELE00001)
Opening Balance: 0.00
Total Debit: 6,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Telephone Expense: 6,000.00

Office Supplies

Office Supplies (OFFC00001)

Opening Balance: 0.00
Total Debit: 8,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Office Supplies: 8,000.00

Printing & Stationery

Printing & Stationery (PRNT00001)

Opening Balance: 0.00
Total Debit: 4,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Printing Expense: 4,000.00

Selling & Distribution Expenses

Advertisement

Advertisement (ADVT00001)
Opening Balance: 0.00
Total Debit: 25,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Advertisement: 25,000.00

Sales Commission
 Sales Commission (COMM00001)
Opening Balance: 0.00
Total Debit: 15,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Sales Commission: 15,000.00

Freight Outward

Freight Outward (FRGO00001)

Opening Balance: 0.00
Total Debit: 8,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Freight Outward: 8,000.00

Packing Charges

Packing Charges (PACK00001)

Opening Balance: 0.00
Total Debit: 5,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Packing Charges: 5,000.00

Financial Expenses

Interest Paid

Interest Paid (INTP00001)

Opening Balance: 0.00
Total Debit: 12,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Interest Expense: 12,000.00

Bank Charges
 Bank Charges (BNKC00001)
Opening Balance: 0.00
Total Debit: 2,500.00
Less: Total Credit: 0.00
─────────────────────────────────
Bank Charges: 2,500.00

Other Expenses

Repairs & Maintenance

Repairs & Maintenance (REPR00001)

Opening Balance: 0.00
Total Debit: 7,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Repairs Expense: 7,000.00

Insurance

Insurance (INSU00001)
Opening Balance: 0.00
Total Debit: 10,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Insurance Expense: 10,000.00

Professional Fees

Professional Fees (PROF00001)

Opening Balance: 0.00
Total Debit: 15,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Professional Fees: 15,000.00

Depreciation
 Depreciation (DEPR00001)
Opening Balance: 0.00
Total Debit: 20,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Depreciation: 20,000.00

Bad Debts

Bad Debts (BADD00001)

Opening Balance: 0.00
Total Debit: 3,000.00
Less: Total Credit: 0.00
─────────────────────────────────
Bad Debts: 3,000.00

Miscellaneous Expenses

Miscellaneous Expenses (MSCE00001)

Opening Balance: 0.00
Total Debit: 4,500.00
Less: Total Credit: 0.00
─────────────────────────────────
Misc Expenses: 4,500.00

TOTAL OPERATING EXPENSES CALCULATION

Administrative Expenses:
Salaries & Wages: 120,000.00
Rent: 36,000.00
Electricity: 18,000.00
Telephone & Internet: 6,000.00
Office Supplies: 8,000.00
Printing & Stationery: 4,000.00
───────────
Subtotal: 192,000.00

Selling & Distribution:

Advertisement: 25,000.00
Sales Commission: 15,000.00
Freight Outward: 8,000.00
 Packing Charges: 5,000.00
───────────
Subtotal: 53,000.00

Financial Expenses:
Interest Paid: 12,000.00
Bank Charges: 2,500.00
───────────
Subtotal: 14,500.00

Other Expenses:
Repairs & Maintenance: 7,000.00
Insurance: 10,000.00
Professional Fees: 15,000.00
Depreciation: 20,000.00
Bad Debts: 3,000.00
Miscellaneous: 4,500.00
───────────
Subtotal: 59,500.00

──────────────────────────────────────
TOTAL OPERATING EXPENSES: 319,000.00
══════════════════════════════════════

FINAL PROFIT & LOSS CALCULATION

Trading Account Section

Dr. Cr.
Opening Stock: 40,000.00
Purchases: 450,000.00 Sales: 800,000.00
Less: Purchase Returns: (10,000.00) Less: Sales
Net Purchases: 440,000.00 Returns: (20,000.00)
Freight Inward: 12,000.00 Net Sales: 780,000.00
Carriage Inward: 3,000.00
───────────
495,000.00
Less: Closing Stock: (50,000.00)
Cost of Goods Sold: 445,000.00
Gross Profit c/d: 335,000.00
─────────── ───────────
 780,000.00 780,000.00
═══════════ ═══════════

Profit & Loss Account Section

Dr. Cr.
Operating Expenses: 319,000.00 Gross Profit b/d: 335,000.00
Other Income:
Interest: 15,000.00
Discount: 5,000.00
Misc Income: 3,000.00
───────────
Total Other
Income: 23,000.00

Net Profit (Transfer

to Capital): 39,000.00
─────────── ───────────
358,000.00 358,000.00
═══════════ ═══════════

Summary Calculation

INCOME:
Net Sales: 780,000.00
Interest Received: 15,000.00
Discount Received: 5,000.00
Miscellaneous Income: 3,000.00
───────────
Total Income: 803,000.00

EXPENSES:
Cost of Goods Sold: 445,000.00
Operating Expenses: 319,000.00
───────────
Total Expenses: 764,000.00

──────────────────────────────────────────────
NET PROFIT: 39,000.00
══════════════════════════════════════════════
DETAILED BREAKDOWN

Income Statement (Vertical Format)

Revenue from Operations:

Gross Sales: 800,000.00
Less: Sales Returns: (20,000.00)
───────────
Net Sales: 780,000.00

Cost of Goods Sold:

Opening Stock: 40,000.00
Add: Purchases: 450,000.00
Less: Purchase Returns: (10,000.00)
───────────
Net Purchases: 440,000.00
Add: Direct Expenses:
Freight Inward: 12,000.00
Carriage Inward: 3,000.00
───────────
Total: 495,000.00
Less: Closing Stock: (50,000.00)
───────────
Cost of Goods Sold: (445,000.00)
───────────
GROSS PROFIT: 335,000.00

Other Income:
Interest Received: 15,000.00
Discount Received: 5,000.00
Miscellaneous Income: 3,000.00
───────────
Total Other Income: 23,000.00
───────────
Total Income: 358,000.00

Operating Expenses:
Administrative Expenses: 192,000.00
Selling & Distribution: 53,000.00
Financial Expenses: 14,500.00
Other Expenses: 59,500.00
───────────
Total Expenses: (319,000.00)
 ───────────
NET PROFIT BEFORE TAX: 39,000.00

Less: Income Tax: 0.00

───────────
NET PROFIT AFTER TAX: 39,000.00
══════════════════════════════════════════════

KEY RATIOS & ANALYSIS

Profitability Ratios

Gross Profit Margin = (Gross Profit / Net Sales) × 100

= (335,000 / 780,000) × 100
= 42.95%

Net Profit Margin = (Net Profit / Net Sales) × 100

= (39,000 / 780,000) × 100
= 5.00%

Operating Ratio = (Operating Expenses / Net Sales) × 100

= (319,000 / 780,000) × 100
= 40.90%

Expense Analysis

COGS as % of Sales = (445,000 / 780,000) × 100 = 57.05%

Admin Expenses as % of Sales = (192,000 / 780,000) × 100 = 24.62%
Selling Expenses as % of Sales = (53,000 / 780,000) × 100 = 6.79%

IMPORTANT NOTES

1. Gross Profit: Shows efficiency in production/trading

2. Operating Profit: Shows efficiency in operations

3. Net Profit: Final profit after all expenses

4. Opening Stock: Asset at beginning, becomes expense in COGS

 5. Closing Stock: Reduces COGS, becomes asset in Balance Sheet

6. Direct Expenses: Include in COGS calculation

7. Indirect Expenses: Deduct after Gross Profit

8. Net Profit: Transferred to Capital Account in Balance Sheet

Formula Quick Reference

Net Sales = Gross Sales - Sales Returns

Net Purchases = Gross Purchases - Purchase Returns
COGS = Opening Stock + Net Purchases + Direct Expenses - Closing Stock
Gross Profit = Net Sales - COGS
Net Profit = Gross Profit + Other Income - Operating Expenses