The document discusses profit and loss statements. It explains that a profit and loss statement shows if a company made a profit or loss over a period of time. Revenue is recognized when economic benefits are received. Expenses are deducted from revenue to calculate profit. The document provides an example of a poultry farmer's profit calculation. It shows his expenses of Rs. 2040 and sales of Rs. 2565 from 95 birds, giving a profit of Rs. 525.

1. PROFITPROFIT
ANDAND
LOSSLOSS

2. INTRODUCTION
Balance sheet shows health of the
organization. Income statement also called
as profit and loss statement (P&L), gives
company's financial statement for
particular period.
This shows if the organization has made
profit or loss during particular period.
This slide demonstrates in a simpler
manner how profit can be calculated

3. REVENUE RECOGNITIONREVENUE RECOGNITION
Revenue is the income of the business from its operating
activities i.e sale of goods, rendering services or allowing
others to use the entity’s resources. It may be called
sales, fees, interest, dividend, royalties etc.
When and how should a revenue be recognised ???
General Principles
 If an inflow of economic benefits results in a
corresponding liability, then it it is not revenue.
 When consideration is received other than in cash form,
the fair value of the consideration should be received
 In case of sale of goods revenue can be recognised if
significant risks and rewards are transferred to the buyer
 e.g ABC Ltd. Sold machinery costing Rs.10.00 lacs to
XYZ Ltd. As per the contract, the machinery has to be
installed and commissioned by ABC Ltd.

4.  6. In case of sale on approval basis, revenue should be
recognized only when the customer has approved the
same or reasonable period has elapsed
 7. In case of hire purchase/ installment sales, sale price
(excluding interest) should be recognized as revenue
 8. In case of services, revenue should be recognized to
the extent of services completed.
 e.g. a) revenue from arranging plays / performances
should be recognized when the event is over
 b) Subscription fees should be proportionately
recognized over the period of subscription when the
service is provided
 Royalties should be recognized over the period of
agreement.
 Term fees should be recognized over the term period.
 Membership fees can be recognized as revenue on receipt
but if such fees entitle the members some services, it
should be recognized w.r.t timing and value of services
provided.

5. Example of profit and lossExample of profit and loss
statementsstatements
Case
Mr Patil started poultry as a side business
with 102 birds. He started business with
his own saving of Rs.5000/-.
Out of 102 birds, in one month, 7 birds died

6. ExpensesExpenses
First batch of birds, following were his expenses
as shown in table below
Total Money 2400
Total 2040 rupees
Particulars of Expenses Cost in rupees
Birds (102 nos) 520 rupees
Transportation 20 rupees
Bird feed 1200 rupees
Medicine , electricity
expenses
90 rupees
Labor charge and capital
interest
200 rupees
Birds Mortality 10 rupees

7. SALESSALES
•Total Weight of birds were averaging 1.8 kgs
•Due to mortality factor, Mr Patil has 95 birds
•Purchasing rate in market is 15 rupees per kg
•Thus Sales in rupees can be calculated as
•No of Birds x Average Weight x Rate per kg of birds
•= 95 x 1.8 x 15
•Total Money obtained from Sales = 2565 Rupees

8. ProfitProfit
Total Profit is
Income obtained from Sales and deducting
expenses incurred
From our earlier slide , Expenses is given below
From Previous Slide , Sales income is given
below
Expense = 2040 Rupees
Income from Sales = 2565 rupees
Profit = Income from Sales - Expenses
Profit = 2565 – 2040 = 525 rupees