Making a profit and loss report for a manufacturing company is a crucial thing to do, because it functions as a control tool and performance indicator for a company. Not only that, making an income statement also has many other functions for the good of the company.
In addition, knowing what an income statement is is important for differentiating different types of financial statements that have different functions. Examples of other financial reports are reports on changes in capital, and many others.
So, so that you don’t make the wrong report, let’s find out about the following review of the profit and loss report of a manufacturing company.
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Definition of Profit and Loss Report
The first thing you should know is what an income statement is and especially in a manufacturing company. Reports are an activity of conveying information that functions as a form of accountability that can be in the form of oral or written.
Meanwhile, a manufacturing company’s income statement is a financial report prepared by a certain finance department that contains information about profits and losses in a certain period in a manufacturing company.
The purpose of making an income statement in general is to explain how the company’s financial condition is in a certain period. Therefore, in general, income statements or other financial reports are made at the end of the period, such as the end of the year or the end of the month, following the provisions of each company.
So, company owners or stakeholders can find out the financial condition of the company at that time. Therefore, the income statement of a manufacturing company can serve as a basis for evaluation or for determining subsequent decisions.
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Types of Manufacturing Company Profit and Loss Reports
The next thing you need to know is the type of manufacturing company income statement.
So, here are the types of income statements that you need to know.
1. Single Step Profit and Loss Report
This type of income statement is a report that is single or only shows 1 expense category and 1 income category.
So, who uses this type of income statement? This type of income statement is very useful for external users who cannot calculate profitability sums and efficiency ratios and have limited data coverage.
The advantage of this type of income statement is its simple format, so it does not contain detailed financial cycles.
2. Multiple Step Income Statement
A multiple step income statement is a report that separates an expense account into other relevant accounts.
It is also very detailed in nature and you can use it according to its function.
In addition, this type of income statement also contains other information, such as cost of goods sold, gross profit, net profit, operating profit, and many others. This report is usually used by top companies and investors.
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Functions of Profit and Loss Reports in Manufacturing Companies
You also have to know what are the functions of a manufacturing company’s income statement that you must understand.
1. As a Financial Report
The first function is to function as a financial report, because the income statement contains information about the company’s income.
When the company knows the relationship between revenue and costs, the company can develop a strategy to increase revenue in the following year.
In addition, the income statement can also modify deductible expenses. Thus, the company’s margin can be bigger.
2. Company Performance Indicators
The income statement also has a function as an indicator of the performance of a company.
Especially for public companies, because most public companies actively sell their services or services to the general public in the form of shares.
3. Monitor the Company’s Financial Health
The next function of the income statement is to monitor the company’s financial health along with the cash flow statement and trial balance .
Monitoring financial health is very important because it is a supporter of the company’s existence.
4. As Comparative Data
The income statement is prepared with the aim of comparing company performance data in terms of production.
So, the income statement can be measured whether the company’s income has increased or vice versa.
Furthermore, companies can also use income statements as a basis for determining short-term and long-term strategies. Determining company priorities can also use the income statement.
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Accounts in the Income Statement
The income statement has the following accounts.
1. Profit
Profit is the increase in net assets and capital that you have subtracted total costs.
2. Loss
In addition to the profit account, there is also a loss account which contains a decrease in net assets in a certain period.
3. Income
Revenue is a profit and loss statement account that contains the flow of incoming assets through the company’s business activities.
4. Income
Maybe you think that income and earnings are the same thing. However, in the world of accounting, these two things have differences.
Income, namely the total amount of the company’s income, then reduced by the company’s operational costs.
5. Expenses/Costs
The next account is an expense/cost account. The account contains information about the flow of assets that go out due to the company’s business activities.
Examples are the cost of producing goods, rendering services, paying company debts, and others.
6. Acquisition Price
The acquisition price is the final account. The cost account is cash out due to purchasing activities such as raw materials. Acquisition price is also known as production cost.
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Elements of a Manufacturing Company Income Statement
In making an income statement, there are 4 basic elements that must exist and you pay attention to.
This is because these elements are important indicators in making an income statement.
1. Revenues
The first element of the income statement is income or revenues.
Revenue is the amount of results obtained from product sales and is not net income.
2. Expenses (Cost)
In addition to the revenue element, there are also expense or cost elements which are the overall costs required by the company, for example, operational costs .
3. Profit (Profit)
The next element of the income statement is profit or profit.
4. Losses
The last element is the loss which is the cost required by the company which turns out to be greater than the amount of income earned by the company.
So, that’s a complete review of the profit and loss statements of manufacturing companies that are important to know.