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Group 6
Annisa Alyssia Kamil
Dinda Rahayu
Eka Putri Juliana
Natalia Yacoba Sira
Sekar Nirma Arum
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Calculating the profit or loss
of a business
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What is a profit and loss statement?
The profit and loss statement is a summary of
the financial performance of a business over
time (monthly, quarterly or annually is most
common). It reflects the past performance of the
business and is the report most often used by
small business owners to track how their
business is performing.
As the name indicates the profit and loss
statement (also known as a statement of
financial performance or an income statement)
measures the profit or loss of a business over a
specified period. A profit and loss statement
summarises the income for a period and
subtracts the expenses incurred for the same
period to calculate the profit or loss for the
business

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Are profit and loss statements compulsory?
Sole traders, partnerships and small
proprietary companies are not required to
prepare and lodge a profit and loss statement
with their annual tax return. However, they are
very useful in helping you to objectively
determine the financial performance of your
business. Most accounting software packages
will produce a profit and loss statement, but
you may need the help of a bookkeeper or an
accountant unless your business is very small.
All public companies and large proprietary
companies are required by law to prepare a
formal financial report that complies
with Australian Accounting Standards for each
financial year

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Why prepare a profit and loss statement?
Producing regular profit and loss statements (at least
quarterly or monthly) will enable you to:
answer the question, "How much money am I making, if
any?"
compare your projected performance with actual
performance;
compare your performance against industry benchmarks;
use past performance trends to form reasonable forecasts
for the future;
show your business growth and financial health over time;
detect any problems regarding sales, margins and expenses
within a reasonable time so adjustments may be made to
recoup losses or decrease expenses;
provide proof of income if you need a loan or mortgage; and
calculate your income and expenses when completing and
submitting your tax return.


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Types of financial analysis
Many types of financial reports are
concerned with planning ahead.
These include cashflow forecasting,
break-even analysis and budget setting.
Others are concerned with reporting
results at the end of the year.
These include the profit and loss account
and the balance sheet.
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The purpose of a profit and
loss account
It summarises all the sales revenue for
the financial year.
It summarises all the payments or
expenses for the same year.
The difference between the two totals is
the profit or loss made in that year.
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Why produce a profit
and loss account?
It is a legal requirement. Tax is paid on
the profit.
It summarises all the years transactions
as recorded in documents such as
invoices.
It shows the financial health of the
business.
It is studied by managers, shareholders,
banks, financiers and other relevant groups
of people.
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The structure of a profit
and loss account 1
Top part is concerned with gross profit, e.g.

Sales 300,000
Cost of sales 100,000
Gross profit 200,000

Note: cost of sales is the same as cost of
purchases. It is deducted from sales.
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The structure of a profit and loss
accounts 2
Second part is concerned with net profit, i.e.
gross profit minus expenses.

Gross profit 200,000
Expenses
Salaries 55,000
Rent 10,000
Other 5,000
Total expenses 70,000
Net profit 130,000

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Your turn!

Sales
Cost of sales
Gross profit

Expenses
Salaries
Rent
Electricity
Other
Total expenses

Net profit






68,000
12,000
5,000
5,000


320,000
160,000
??






??

??
480,000
90,000
390,000
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Computers and the profit
and loss account
Spreadsheets can be used to compile
profit and loss accounts
Business accounts packages automatically
produce profit and loss accounts
Advantages include speed, accuracy,
instant access to information
Problems occur if wrong data entered,
wrong commands entered, any data is lost
or corrupted.