Difference between revisions of "Profit and Loss"

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Latest revision as of 22:21, 2 December 2013

Overview

Introduction to the Profit and Loss (P&L) Report

The Task of Accounting is Measuring and Reporting Profit i.e. being accountable

The main task of accounts, is to monitor and measure profits.

Profit = Revenue less Costs

So monitoring profit also means monitoring and measuring revenue and costs. There are two parts to this:

1. Recording financial data. This is the ‘book-keeping’ part of accounting.
2. Measuring the result. This is the ‘financial’ part of accounting. If we say ‘profits are high’ this begs the question ‘high compared to what?’ (You can look at this idea in more detail when covering Ratio Analysis)

Profits are ‘spent’ in three ways.

1. Retained for future investment and growth.
2. Returned to owners e.g. a ‘dividend’.
3. Paid as tax.

Parts of the Profit_and_Loss Report

The Profit & Loss Report aims to monitor profit. It has two parts.

     1. The Trading Account.

This records the money in (revenue) and out (costs) of the business as a result of the business’ ‘trading’ i.e. buying and selling. This might be buying raw materials and selling finished goods; it might be buying goods wholesale and selling them retail. The figure at the end of this section is the Gross Profit.

      2. The Profit and Loss Account 

This starts with the Gross Profit and adds to it any further costs and revenues, including overheads. These further costs and revenues are from any other activities not directly related to trading. An example is income received from investments.

Uses of the Profit and Loss Report.

• The main use is to monitor and measure profit, as discussed above. This assumes that the information recorded is accurate. Significant problems can arise if the information is inaccurate, either through incompetence or deliberate fraud.
• Once the profit/loss has been accurately calculated, this can then be used for comparison i.e. judging how well the business is doing compared to itself in the past, compared to the managers’ plans and compared to other businesses.

How to use the Profit and Loss Report

Click on the Accounts Tab

Select the Profit_and_Loss Button and the P&L Report will display.

Selecting by Department

Set the Profit and Loss Report by Department

Select the Department required from the drop down menu
Select All Departments by ticking the "All" box. You will notice that each department has been added as a separate column to the P&L Report. And the P&L now displays all departments from the drop down list.

The Total Amount column will always display regardless of the selection of Departments.

Using the Radio Button Options

Three options can be selected using the Radio Buttons to Exclude Tax, Include Tax and Both

The default setting in ERP is to "Exclude Tax" in the headings so in each of the columns for each Department and Total Amounts the suffix (EX) is displayed.

Selecting the radio button to "Includes Tax" ensures that in the headings of each of the columns for each Department and Total Amounts the suffix (INC) is displayed.

Select the radio button for "Both", and all of the columns for both (EX) and (INC) is displayed for each Department and the Total Amounts

Refresh

If other Users are creating transactions within ERP you can use the refresh button to update the P&L Report to display