2. The profit and loss account statement
The profit and loss account statement shows the flow of activities and
transactions between the organization’s top line (revenues) and its bottom
line (net income).
3. The profit and loss account statement
Revenues is that income that a company receives from its normal
business activities.
Cost of sales or cost of goods soldis made up of the direct costs/expenses
attributable to the production of the goods sold by the organization
Other expenses :
• Payroll and related expenses This category includes the salaries and
wages of employees in their respective departments.
• Other departmental expenses This category includes only the direct
departmental expenses
The departmental income or loss will simply represent the net revenue of
each department minus all related cost of sales, payroll and related
expenses, and other expenses
Undistributed operating expenses As not all departments are revenue
generating departments in a company, certain categories of expenses are
generated by departments that are called service departments
4. The profit and loss account statement
Undistributed operating expenses, which are:
1.Administrative and general expenses
2.Information and telecommunications systems
expenses
3.Sales and marketing expenses
4.Property and operations maintenance expenses
5.Utility expenses
5. Adjustments to the balance sheet and
the profit and loss account
1. The accruals convention This is also called the matching convention, it is
very important in the calculation of profit.
2. Stock (inventory) Generally the value of inventory at the end of the year is
equal to the number of items in stock multiplied by the value of these
individual items.
• Opening balance (01/01/2016) € 5,600
• add purchases (all of 2016) € 28,000
• equals available supplies (for the year 2016) € 33,600
• less supplies used (to be determined) unknown
• equals ending balance (31/12/2016) € 4,000
Since it is clear that the available supplies during 2016 was €33,600 and
the year ended with only €4,000, then it means that supplies used in
2016 was €33,600 – €4,000 = €29,600
6. Adjustments to the balance sheet and
the profit and loss account
Accounts receivable result from credit sales accorded by the organization
Depreciation and amortization Based on the matching or accruals
convention, adjustments for the depreciation and amortization of fixed assets
can be made