To make a profit and loss report, you must first know how to calculate profit and loss.
In addition to knowing how to calculate profit and loss for a service company and how to calculate profit and loss for a trading company, you should also know what the terms net profit and gross profit are.
This is because profit, loss, net profit and gross profit have different terms. Given the different concept, how to calculate it is also different.nSo, to find out more about how to calculate profit and loss read thus article.
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Definition of Profit and Loss
There are several terms that you need to know, such as the following income statement, gross profit and net profit.
1. Profit and Loss Report
First, you must know what an income statement is because an income statement is very important for business development.
The profit and loss report is a financial report that functions to show expenses, income, and profit and loss from your business in a certain period.
This report is the first to be made in the accounting cycle because profit and loss must be reported to investors or capital owners before other types of financial reports are prepared.
In addition, the income statement also serves to calculate the net profit of a company.
The trick is to reduce the amount of expenditure by the amount of income earned.
2. Gross Profit
In addition to knowing what a profit and loss statement is, you must also know what gross profit is.
The definition of gross profit is the total net sales minus the HPP or Cost of Goods Sold.
In simple terms, gross profit is also defined as the remaining income after all production costs are calculated.
3. Net Income
In order for you to understand better about how to calculate profit and loss, you must also understand the meaning of net income.
Net profit is defined as net income or the total of all income after deducting the total of other costs outside the COGS.
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Difference between Net Profit and Gross Profit
After knowing the meaning of gross profit and net profit, you also need to know what are the differences between the two terms so you know how to calculate profit and loss correctly.
In preparing the income statement, the term gross profit serves to show the total revenue remaining at the end of an accounting period.
Furthermore, the remaining income will be used as capital to cover business operational costs , such as selling, admin, marketing costs, and so on.
Meanwhile, net profit serves to deduct all business operating costs from the gross profit at the end of the period. This profit is also used to calculate the Break Even Point (BEP) of the company to find out if the company has been able to generate profits from the initial capital.
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Profit and Loss Report Purpose
You need to know that there are a number of types of company financial reports that are made for different purposes. Making it can be done manually using excel or with company financial reporting software .
Well, the company’s internal financial reports are prepared by the company’s management so that they can check and evaluate the company’s operating status for one year.
In general, company management will set up a structured division to compile expenses and income in a transparent manner.
So, what is the purpose of calculating profit and loss in the financial statements?
The main purpose of the income statement is to communicate the business activities and profitability of the company to the end users of the income statement and stakeholders .
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Profit and Loss Report users
Well, before you know how to calculate profit and loss, then also know who is the person or party who needs a profit and loss report.
In general, there are two types of income statement users, namely internal users and external users.
1. Internal Users
Internal users are parties such as the company’s management as well as the company’s board of directors.
These internal users use the income statement as a basis for analyzing the business and making decisions for the next business strategy .
For example, an income statement is useful for determining whether to create a new branch or not by looking at performance numbers.
2. External Users
External users are investors and creditors or other people outside the company who do not have other financial information, except for the financial statements issued by the company.
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Profit and Loss Report Components
Before knowing how to calculate profit and loss, you also need to know what are the components of an income statement.
This is useful for you, for example calculating profit and loss or compiling profit and loss reports properly and correctly. So, here are the components in the income statement.
1. Income
The first component is income. Income is an addition to the value of assets that makes the value of capital increase.
This income component consists of two types, namely operating income and non-business income or interest.
All transaction records can use an accounting application to save time at a more economical cost.
2. Burden
Expenses are all forms of costs that companies incur to earn income, whether they are operating expenses or expenses outside the business.
3. Selling Expenses
Selling expenses are operating expenses that function for sales activities, such as examples for marketing activities, employee salaries, and so on.
4. General and Administrative Fees
The last component in the income statement is general and administrative expenses.
General and administrative costs are costs that are not written in selling expenses. Examples are the cost of a business license and the cost of correspondence.
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How to Calculate Profit and Loss
Well, now is the time for you to know how to calculate profit and loss for a business.
1. How to Calculate Gross Profit
First, you need to know how to calculate gross profit. The trick is to reduce the amount of net sales with HPP (Cost of Sold) .
If written in a formula formula, then Gross Profit = Total Net Sales – Cost of Goods Sold.
So, maybe you are wondering how to get a nominal amount for net sales.
To get the net sales value, you can subtract all sales totals by the total of sales returns, freight, and sales discounts.
Meanwhile, to get the HPP value, you can add up the amount of initial business capital with the number of net purchases.
Then, you also need to subtract that value from the total cost of the ending inventory.
2. How to Calculate Net Income
The next way to calculate profit and loss is to know how to calculate simple net profit.
The way to calculate net profit is by subtracting the total gross profit with all operating expenses, including operating costs and non-operating costs.
Examples of operational costs are all costs that you use for administrative activities, marketing, to depreciation.
Meanwhile, non-operating costs are costs such as taxes and interest.
Thus, you can calculate the value of a company’s net profit by using the formula:
Net Profit = Gross Expenses – Operating Expenses
The formula for calculating net profit will change if your business entity is subject to income tax.
Then, what is the formula for net income subject to income tax? The formula for net income that has been subject to income tax changes to:
Net profit = Income/revenue before tax – PPh expense
So, that’s a complete review of how to calculate profit and loss as well as other knowledge you need to know about calculating profit and loss for a business.