Profit and loss account

A profit and loss account provides a good overview of the costs and revenues that a company incurs. What is a profit and loss account, and how do you set up such an account? These questions are dealt with on the basis of an example of the construction of a profit and loss account and an example of a calculation. In addition to a balance sheet, a company sets one profit and loss account (or income statement) on. A balance sheet provides a good overview of the assets and assets of a company. We use a profit and loss account to identify the costs and revenues of a company.

Structure of the profit and loss account

A profit and loss account gives a overview of the costs and revenues of a company in a certain period. We put the costs on the debit side, or the left side of the bill. We put the proceeds on the credit side, or the right side of the bill. Examples of costs that may arise are, for example, labor costs, energy costs, telephone costs and purchase value of the turnover. Examples of revenues that can occur are, for example, rental income, turnover and interest income.

Calculate with the profit and loss account

The left and right sides of a profit and loss account are always in balance. This means that if the costs are greater than the revenues, an extra item must be placed on the revenues side (the credit side) that will make this difference disappear. This is the item 'net loss'. After all, there is a loss if the costs exceed the revenues. If the revenues are higher than the costs, then an extra item must be placed on the side of the costs (the debit side): 'net profit'. After all, there is a profit if the revenues are higher than the costs.

Example of the structure of the profit and loss account

Profit and loss account
DebitCredit
Purchase value of sales6000Revenue14 000
Labor costs1000Interest income1000
Energy costs500
Depreciation expense1500
Net profit6000
Total15000Total15000

Example sum

We are looking at a company that purchases shoes and resells them to consumers. The following mutations could occur:
Shoes sold for 1000 euros, of which the purchase price was 700 euros
We now have to deal with costs, namely the purchase value of the turnover: 700 euros. We therefore charge these costs the moment we sell the stocks! Of course we also have revenues: 1000 euros in sales.
Paid from cash: energy costs (200 euros) and labor costs (500 euros)
We now only have to deal with costs, namely 200 euros in energy costs, and 500 euros in wage costs.
If we process these mutations in the previous profit and loss account, we will get the following result:
Profit and loss account
DebitCredit
Purchase value of sales6700Revenue15 000
Labor costs1500Interest income1000
Energy costs700
Depreciation expense1500
Net profit5600
Total16 000Total16 000

You can see that the net profit decreased by 400 euros (from 6,000 to 5600). This is also true: we have had to deal with 700 + 200 + 500 = 1400 euros in costs, and 1000 euros in revenues. That is a difference of 400 euros.

Video: The INCOME STATEMENT Explained aka. Profit and Loss P&L (April 2020).

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