PROFIT AND LOSS
Do you know what is Profit and Loss is all about? Well, from the second week of our Business Math class this is our topic, and guess what? I really don't have any idea about it. But as our Professor had discuss all the things about this topic, I'd understand it already.
So here it goes, Profit is the amount by which the sales are greater than the cost of goods sold and the operating expenses, it is mostly used for internal comparison. Margins also means gain or profit.
These are the formulas in computing profit:
Net Sales = Gross Sales – Refunds and Allowances
Net Profit =
Gross Profit – Operating Expenses
The net sales and profit may also be given in scheme
diagram as follows:
Gross Sales
- Sales Returns and Allowances
------------------------------------------------
Net Sales
- Costs of Goods Sold
------------------------------------------------
Gross Profit
- Operating Expenses
------------------------------------------------
Net Profit
What is Gross Sales?
It is the actual amount received for selling the goods. Total invoice value of sales, before deducting for customer discounts, allowances or returns.
What is Refunds?
This are the amounts returned usually if goods are defective.
What is Net Sales?
Are obtain when refunds are being deducted from the gross sales.
What is Costs of Goods Sold?
Also called Buying Products, is the amount paid for articles bought including the buying expenses. Costs are associated with particular goods using one of several
formulas, including specific identification, first-in first-out ,
or average cost. Costs include all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their
present location and condition. Costs of goods made by the business
include material, labor, and allocated overhead. The costs of those
goods not yet sold are deferred as costs of inventory until the
inventory is sold or written down in value.
What is Inventory?
It is an itemized lists
of goods on hand.
What is Gross Profit?
It is the difference between the net sales and the cost of goods sold.
What is Operating Expenses?
Also called overhead are
selling expenses such as salaries or wages, traveling expenses, rentals, water,
electric bills, commissions, taxes.
What is Net Profit?
It is the amount
obtained when all the selling expenses or other cost of doing business are
deducted from the gross profit.
To compute for the cost of goods sold for a period of
time, we have the formula as follows:
Available Goods =
Beginning Inventory + Purchases
Costs of Goods
Sold = Available Goods – Ending Inventory
The above may be diagrammed as follows:
Beginning Inventory
+ Purchases
------------------------------------------------
Goods For Sale
- Ending Inventory
------------------------------------------------
Costs of Goods Sold
In case the sales are less than the cost of goods sold,
there is a loss. The formulas in computing losses are as follows:
Gross Loss =
Costs of Goods Sold – Net Sales
Net Loss = Gross
Loss + Operating Expenses
The relationship of the terms of loss may be diagrammed
schematically as follows:
Cost of Goods Sold
- Net
Sales
---------------------------------
Gross Loss
+ Operating Expenses
-----------------------------------
Net Loss
Profit and Loss statement are financial statement that summarizes the revenues, costs and expenses
incurred during a specific period of time . These records provide information that shows the ability of a
company to generate profit by increasing revenue and reducing costs.
Profit and Loss provides information about various kinds of
expenses. The expenses of the current year can be compared with the
expenses of the previous year and effective steps can be taken for the
control of expenses, where it becomes necessary.
Approved by: Prof. Crisencio Paner
