In the world of business or business, especially trading companies , trading company income statements are a very important part of the accounting process.
In the process of calculating, compiling, or making it, it should not be arbitrary because it requires the right knowledge so that the results are valid.
The reports prepared must be calculated in accordance with the appropriate balance sheet and cash flow reports based on a certain accounting period. Then, what is meant by a trading company income statement?
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Let’s look at the following article to find out more about the meaning, form, and examples.
What Is a Profit and Loss Report?
The income statement is also known as the English term, namely profit and loss statement or income statement.
The income statement is one of the most important parts of a company’s financial statements because it contains records of the company’s income and expenses. From this report, you can find out about the condition of the company, whether it is in a profit or loss condition.
Using an income statement made with a financial reporting application will make it easier to make decisions regarding strategies to achieve company profit targets.
The main purpose of making a profit and loss report for a trading company is to find out the efficiency and effectiveness of the company based on value and costs. In addition, the income statement also helps business owners in checking the company’s profits and losses in a certain period to serve as a guideline for business evaluation.
The income statement in the company is also useful for calculating the amount of tax that is the liability of the company.
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Key Elements of a Trading Company Income Statement
In the process of compiling and making a profit and loss statement for a trading company, there are several elements that must be included. Among them:
1. Revenue
The first element that must be present in a trading company’s income statement is revenue.
Revenue is an element that must be present in the income statement. This element contains notes on the increase in company assets originating from operational activities.
The way to calculate it is to reduce the total gross income with a discount (returns, discounts or other allowances).
Income can be in the form of dividends, interest, fees or service fees, and rent.
2. Expenses (Expense)
Expenses or liabilities are the use of assets that must be borne or paid by the company in carrying out its business activities.
These obligations can be in the form of production costs, employee salaries, rent, taxes, insurance, experts, machine maintenance or maintenance costs, and others.
3. Profit (Profit)
Profit or gain is the excess of revenue derived from net sales after deducting expenses such as taxes, operations and cost of goods sold.
Therefore, this profit is often referred to as net income.
4. Loss
The condition in which the company earns less profit than the burden borne by the company is called a loss.
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Forms of Trading Company Profit and Loss Report Formats
In preparing the income statement for a trading company, in general, there are 2 different formats that are most often used.
Among them are single step income statements and multiple step income statements.
Check out the discussion below for further explanation!
1. Single Step Income Statement
In this format, all profits and income are recorded at the beginning of the report, then proceed with recording all the company’s losses and expenses.
The difference between profits, income, losses and expenses will be the gross profit.
Meanwhile, the difference between income tax (PPh) and gross profit will result in net profit.
2. Multiple Step Income Statement
For this one profit and loss report format, each company’s operational transactions that occur will be classified or separated from non-operational transactions.
Then the company’s expenses and related income will be compared.
When operating profits are generated there will be a difference between ordinary and unusual business activities.
In a multiple step profit and loss report, there are several elements that you should pay attention to. Among them:
a. Net Sales (Revenue)
Net sales are income earned by the company from all operational activities.
The way to calculate this total income is as gross income minus expenses such as deductions or discounts, returns, and allowances.
b. Cost of Goods Sold (HPP)
HPP is the cost or amount of expenditure, directly or indirectly, that must be incurred by a company to produce a product or service.
c. Gross Profit (Gross Profit)
Gross profit is the result of net sales after deducting HPP.
In other words, gross profit is the company’s income from sales before deducting expenses such as factory overhead costs , employee salaries, taxes and interest.
This account is usually used as a consideration to decide whether the company will reduce or increase the cost of COGS.
d. Operating costs
In the multi-step income statement format, the elements of operating expenses are classified into two types, namely administrative expenses and selling expenses.
Administrative costs are costs that must be incurred by the company to meet the needs of business management.
For example, management salaries, inventory costs, insurance costs, office equipment, and so on.
Meanwhile, selling costs are costs used for marketing and sales purposes.
Examples include marketing salaries and commissions, travel expenses, rent, advertising, and others.
e. Operating Income
This element is the result of total gross profit minus operating costs.
Operating income shows the total income derived directly from the main operational activities of a company.
f. Net Profit (Net Profit)
Net profit is the amount of profit or excess income from sales activities carried out by the company in a certain period.
Generally, net profit is calculated from gross profit minus operating expenses, both operating and non-operating expenses.
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Sample Profit and Loss Report of a Trading Company
It has been explained previously that there are two types of profit and loss statement formats for trading companies, namely single step and multiple step.
The following are examples and how to calculate profit and loss from each format that you can use as a reference in compiling an income statement:
So, that was an article about the profit and loss report for a trading company that you need to know about.
Apart from company financial reporting software, you can also use other features in accounting applications that are also needed by trading companies such as online invoicing applications .
Hopefully the information above can help you in adding insight or looking for references about profit and loss statements at a trading company.