Profit and Loss Account

Profit and Loss Account

We came across a lot of companies’ director that does not ever look at the profit and loss account close enough but simply ask, “What is the profit/loss number?”. This is a total waste of valuable information that they can leverage on to derive business strategies.

Well, we cannot educate you to become an accounting professional. However, we can provide you the fundamentals to assist you get the idea of the profit and loss statement.

The core concept of profit and loss always surround on this one basic formula: profit or loss is what you get after deducting all expenses from all the revenue generated for a given period. All other things are meant solely to provide more information on the expenses or sales so you can tell exactly how straightforward it is to be well-verse in the profit and loss statement

In some cases, the bookkeeper uses various words for sales, profits, as well as costs. This can make things confusion and gave you the wrong impression that accounting is an uphill struggle. Occasionally, some bookkeeper might use terms like revenue can be rather than sales, it is not difficult to interpret, you just need to be more pay more attention of the nature of the transaction.

The company’s sales can be categorised into different classification depends on the nature the of business or the type of information that add value to the management. For instance, a car dealer might be interested to separate their sales into new and used car sale as the type have distinctive treatment on GST calculation. All these revenues are then aggregated when drawing up the profit and loss account.

The same is true when it comes to expenses can separated into different groups such as good purchase cost, staff cost, rental and utilities etc. All these costs will eventually be added to get the total expenses figure but breaking the cost down into different classes offers insight on the killer areas to be focus on.

As mentioned above, sales minus the expenses gives you the net profit. However, the profit may not always represent the cash flow in a given period. The key difference between profit and cash flow is the timing so when looking at a longer period of time, the cash flow will match the profit or loss.

With these, you should be able to get a grasp of profit and loss statement and relax, if you don’t. We are working with a panel of accounting firm in Singapore that can offer the expertise and help you with these paper work.

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