Preparation and presentation of Statement of Profit or Loss

Po’latov Dilyorbek
IM-82(i)

1. 
   Preparation and presentation of Statement of Profit or Loss
   

A profit and loss statement, or P&L, is a financial document showing a business’s monthly, quarterly, or yearly revenue , profit, and losses. It identifies a company’s financial health for internal decision-making, or entices buyers and investors to purchase or fund the business. 
A Profit and Loss (P & L) statement measures a company's sales and expenses during a specified period of time. The function of a P & L statement is to total all sources of revenue and subtract all expenses related to the revenue. The P & L statement contains uniform categories of sales and expenses. The categories include net sales, costs of goods sold, gross margin, selling and administrative expense (or operating expense), and net profit. These are categories that you, too, will use when constructing a P & L statement. Since it is a rendering of sales and expenses, the P & L statement will give you a feel for the flows of cash into (and out of) your business. The P & L statement is also known as the income statement and the earnings statement.
This Business Builder will explain, through a step-by-step process and the use of a worksheet, how to create a P & L statement. Accounting terms will be defined as they are introduced, and a glossary is included for your reference.
Watch Out For…Matching sales and costs. If the P & L statement you develop is going to be of value, and acceptable to the Internal Revenue Service (IRS), the revenues and expenses reported during the period must match. That is, the expenses incurred to generate the sales of your product (or services) must be related to actual sales during the accounting period.

Example of P&L statement :

2. Which of the following statements about inventory valuation are correct?

1) Average cost and first in first out are both acceptable methods of arriving at the cost of
inventories
2) Inventories of finished goods may be valued at labour and materials costs only, without including overheads
3) Inventories should be valued at the lowest of cost, net realisable value and replacement
cost
4 ) It may be acceptable for inventories to be valued at selling price less estimated profit margin . D

2. 
   Answer: 100/80=1.25. Mark up on cost is 25%
   
3. 
   Answer: 19000-9800-8000+4200=5400. Balance of Arthur’s capital account is 5400