Example of a Profit and Loss Report for a Trading Company – Preparing a profit and loss statement for a trading company is not as easy as we might think. Because we need the right knowledge to get a report that matches a valid balance sheet and cash flow based on a certain time period.
So for those of you who are being assigned by the office or college/organization assignment to make a profit and loss report. Maybe looking for information about examples and how to make a profit and loss statement for a trading company is the best solution.
And on this occasion we will provide sufficiently detailed information relating to the preparation of the profit and loss report for a trading company below.
1. How to make a trading company income statement
Then how do you make a trading company income statement? To be able to make a company profit and loss report, a lot of information is needed, as we explain below.
1.1 Purpose of Making a Profit and Loss Report
In making profit and loss trading companies generally have several benefits or objectives, such as:
- Find out the amount of corporate tax
- Check the effectiveness and efficiency of trading business based on value and cost
- Checking the company’s profits and losses from time to time or within a certain period of time so that it can be used as an evaluation of the company in running its business.
Each financial report has its own function and purpose. Likewise, the income statement has a different purpose from the statement of changes in equity, cash flow statements, and various other financial reports which are discussed in detail in the book Easy Ways to Prepare Financial Statements for Service Companies.
2. Main Elements in Making a Profit and Loss Report
If you want to make a profit and loss report, you need a company report for an annual period. And in making this income statement there are several elements that cannot be overlooked such as income, expenses, profits and losses.
2.1 Revenue ( Revenue )
This element is a mandatory element in an income statement because we have to calculate all incoming income from each sale, from sales interest and also other income. In calculating an income we also have to know other factors such as discounts, sales allowances and returns of damaged goods as well as other factors that can affect sales.
In addition, income can also be in the form of dividends, rent, interest, fees and services or fees. For example, motorcycle service and accessories companies, of course, have incoming income from servicing or repairing damaged motorbikes.
2.2 Expenses
The burden here is meant to be a sacrifice borne by trading companies in running a business. For example, in business, of course there are salary expenses, rental expenses, selling expenses, equipment expenses, insurance expenses, tax expenses, depreciation expenses, telephone expenses, and other expenses.
2.3 Profit ( Profit )
Or commonly known as net profit, this is the excess income derived from net sales deducted by several other expenses such as tax costs and operational costs as well as cost of goods sold.
2.4 Losses _
Loss is when the company gets a profit that is less than the burden borne by the company.
With an income statement, a company can find out the company’s financial condition as a form of financial responsibility to higher-ups and stakeholders as discussed in the Financial Statement Audit book below.
3. Various Profits in the Income Statement
In running a trading company there are several types of profit that must be known such as gross profit, operating profit, profit before tax and net profit. The following is a complete explanation of the types of profit in calculating profit and loss.
3.1 Gross Profit
This is a calculation of net sales revenue minus cost of goods sold. This gross profit is also measured by the company’s direct revenue from product sales in a certain period of time. By knowing this gross profit, you can immediately identify the ability of the company you are running, whether it can cover the cost of its products or not.
3.2 Operating Profit
This one profit is the difference between sales of operating expenses and operating costs. By knowing the operating profit, we can identify whether the company is able to generate income or not.
3.3 Profit Before Tax
This profit is the amount of profit earned by each company before being subject to income tax. The formula for calculating profit before tax is operating profit minus product revenue.
3.4 Net Income
This profit is the excess of sales or net income compared to the cost of goods sold after being deducted by income tax and operating costs.
Generally, this net profit is based on or affected by cost of goods sold, revenue, income tax rates and operating expenses.
To be able to understand this profit difference, Sinaumed’s must first understand the mandatory financial statements, especially for those of you who want to enter the world of financial managers, investors, and creditors who in their daily lives cannot be separated from financial reports. Learn how through the book Easy to Read Financial Statements below.
4. Preparation for Compiling a Profit and Loss Report
In compiling the income statement, a work sheet is needed which is used to make it easier to make profit and loss columns on the trial balance. In making or preparing an income statement, there are generally several steps that we must go through, such as:
- Determine the type of financial statements in the form of a profit and loss statement
- Write down the company identity in the header of the income statement
- Write down the specific period or period of the income statement that will be made
After you have determined the 3 components that make up the report above, you should also not miss some of the main components in writing profit and loss, such as:
- Total income
- Total Load
- Total Profit and Loss (Calculated from the difference between revenue and total expenses)
In order to be able to master writing income statements and other finances, Sinaumed’s can use the book Preparation and Analysis of Regional Government Financial Statements as a reference.
5. Sample Format for Making a Profit and Loss for a Service and Trading Company
Generally, in the preparation of income statements for service and trade companies, there are 2 different formats, namely the Single Step Income Statement and the Multiple Step Income Statement.
For a complete explanation of these two formats, please read the following explanation:
5.1 Single Steps
The single step format of all profits and income is generally placed at the beginning of the report, then it is continued by recording all losses and expenses in the company’s operations.
The difference between profits, costs, income, and also losses will be generated by gross profit, then the difference between income tax and gross profit will be generated by calculating net profit.
5.2 Multiple steps
For the multiple step income statement format, each company’s operational transactions will be separated from non-operating transactions. Then it will compare between expenses and costs with interrelated income. When operating profit is generated, there will be a difference between unusual activities and ordinary activities.
5.3 Elements of multiple step profit and loss
In making an income statement with multiple steps, there are several elements that are the main elements that must be present in preparing the report. Following are the elements.
5.3.1 Net Sales/Revenue
Net sales or income is income derived from all operational activities within the company. To calculate this total income is to calculate the total gross income minus returns, discounts and allowances in other sales.
5.3.2 Cost of sales or HPP for short
This element is a cost in the main trading company that represents whether the company is paid to purchase inventory of an item to be sold.
5.3.3 Gross Profit or Gross Profit
This element is a calculation of net sales minus the cost of goods sold. This element is used generally as a consideration whether the company should reduce or increase the cost of COGS.
5.3.4 Operational Costs
This is an element of expenditure that is calculated outside of the HPP costs when the company is active in selling products. In the multi-step report format, operational costs are divided into 2, namely admin costs and selling costs.
Admin costs are costs incurred for business management needs such as insurance costs, management salaries, inventory costs, office equipment depreciation costs and other costs.
Meanwhile, selling costs are costs incurred used for marketing and sales such as providing commissions and marketing salaries, marketing travel expenses, rental costs, advertising costs and other utility costs.
5.3.5 Operating Income
This element is calculated based on the value of gross profit minus operational costs. So that this income can represent the amount of income that is obtained directly from its main operational activities.
5.3.6 Other expenses and income
This element is not directly related to the sale of products, for example, interest expense, income, taxation, profit on sale of assets and others.
5.3.7 Net Income
To calculate this element you can add operating income with other income and then finally subtract other costs in the company’s operations.
6. Distribution of profits in the income statement
To make profits in the income statement there are 5 types of profits that you should know, such as:
6.1 Gross profit
This is a benchmark for obtaining direct revenue from product sales in a certain period. Gross profit is also often known as income from net sales which is calculated by deducting the cost of goods sold. By knowing the calculation of this gross profit, the company can get a value that can cover production costs.
6.2 Operating profit
This is profit calculated from the difference between sales and all costs and operating expenses of the company. Generally, operating profit is used as a benchmark for companies in obtaining income from business activities.
6.3 Profit Before Tax
This profit is the amount of profit generated before deducting income tax and this profit does not affect the amount of income tax.
6.4 Net Income
Net profit is the remainder of the company’s sales profits compared to the cost of goods sold, then deducted by income tax and company operating expenses. This calculation is used to determine whether the company makes a profit or not. This net profit is influenced by several elements such as revenue, cost of goods sold, operating expenses and income tax.
6.5 Current Operating Profit
This profit is the profit earned from the company’s operations which is deducted after deducting interest and taxes.
Then how about an example of a single step and multiple step income statement? For an overview of the report table, please refer to the following explanation.
With such a complex distribution on the income statement, you must understand how to read the correct financial statements. Sinaumed’s can learn it in the book Secrets of Mastering Financial Reports Quickly with Basic Accounting.
7. Example of a single step income statement
If you want to see an example of a single step income statement, you can follow the example of writing an income statement below:
PT FORWARD CONTINUES TO RETURN
SINGLE STEP PROFIT AND LOSS STATEMENT
December 31, 2021
| Net sales |
100,000,000 |
|
| Cost of goods sold |
70,000,000 |
|
| Gross profit |
30,000,000 |
|
| Operating expenses: | ||
| Selling expenses |
1,000,000 |
|
| Administrative and general expenses |
2,500,000 |
|
|
3,500,000 |
||
| Operating profit |
26,500,000 |
|
| Income outside of business: | ||
| Interest income |
750,000 |
|
| Net profit before tax |
27,250,000 |
|
| income tax |
5,000,000 |
|
| Net profit after tax |
22,250,000 |
How to Read the Results of the Single Step Profit and Loss Report PT FORWARD CONTINUES TO RETURN
- Sale
The gross profit of PT MAJU TERUS TERUS PATANG MUNDUR is Rp. 30 million as of December 31, 21. This gross profit is obtained from net sales of Rp. 100 million minus the cost of sales of Rp. 30 million.
- Operating expense
The company PT MAJU TERUS PATANG MUNDUR incurred a company expense of IDR 3.5 million. So that the operating profit obtained is IDR 30 million – IDR 3.5 million is IDR 26 million 500 thousand.
- Income outside of business
For nominal income outside of business is IDR 750 thousand. To calculate non-business income, IDR 750 thousand plus IDR 26 million 500 thousand produces non-business income of IDR 27 million 250 thousand.
- Tax
Every company will definitely be subject to income tax, so to get a net profit after tax of Rp. 5 million is non-business income of Rp. 27 million 250 thousand minus Rp. 5 million is Rp. 22 million 250 thousand.
8. Example of a multi-step income statement
For an example of a multi-step income statement, you can get an overview and references from the following table.
Those were 2 examples of profit and loss reports that we can provide to those of you who need an overview of making a profit and loss report for a trading company. All you have to do is choose one of the sample report formats above, either single step or multistep format.
9. Example of a book making a profit and loss report
If you are looking for references from accounting books about profit and loss statements, then we recommend that you buy a book entitled From Financial Notes to Profit and Loss Reports written by Lilis Setiawati.
So by having this book for making income statements, you can be more expert in making reports for companies. So that the company you manage now can have a more detailed profit and loss calculation.
Apart from these books, there are also other financial accounting books :
Materials Related to Profit and Loss Reports
That’s all the information we can convey about examples and how to make a profit and loss report for a trading company. Hopefully, with complete information about this profit and loss report, you can make your own report and be able to evaluate whether the company being run is making good profits or making losses.