Understanding a business’ profit and loss account/ statement

In order to monitor the performance of any business, one of the most essential finanical statement that you need to know is Profit and Loss Account. The profit and loss account basically shows the graph of your performance whether it is good or bad in a given period of time.

As in any business no matter big or small, the main objective is to earn money and make some profit out of it. In this regard, the profit and loss account actually shows the extent to which an organizaton is either rising high or dropping down in terms of its performance.

There is a certain format that every company follows while keeping their profit and loss accounts. It always indicates the revenue received as well as the expenses involved in generating it.

The simple procedure to calculate the profit in any business is to substract cost out of revenues and you will get the amount of profit out of it.

A profit and loss account has a number of advantages such as;

a. It reflects business performance in certain time duration.

b. It shows whether the company is going on a high or low by keeping a track of outgoings and incomings.

c. Another major advantage of Profit and loss account is that it shows the sales income as well as the invoices.

d. It records an estimate of cost for raw material or goods used for your business.

As far as its format is concerned, it does follow any particular one and there is a lot of flexibility in it. If you are also looking to make one, then you should take some suggestion from an expert accountant for the most reasonable profit and loss account.

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