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What is the

Profit and Loss statement?

Profit and Loss statement or P&L is the financial statement that derives the financial stability of the business considering the revenue and expenditure over a span of time. The profit and loss statement shows whether the business is going on the right or wrong path and helps to retrospect the business operations, which gives inference whether to increase revenue, decrease costs or do both based on the net summary of the statement.

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Why do retail stores need a

Profit and Loss statement?

For any business, making profits is the ultimate goal and that's what makes them stay in the business. In order to understand whether a business can sustain in the market and for future prediction, a profit and loss statement should be prepared.

  • P&L gives a clear analysis of what the company is actually generating, considering the revenues/expenses and adjusting it with the indirect overheads.
  • Helps in managing a better cash flow and gives visibility for future expansion plans
  • Spots where your cash gets locked and assists in making decisions on shrinking or increasing the resources like employees, inventory or facilities
  • Businesses mandatorily need to prepare profit and loss statement to abide by the Income tax and GST laws as well as to understand their business better
  • P&L statement helps to compare the performance with the previous years and identify the focus factors to grow business faster
  • Banks/Financial institutions seek historical, provisional, and projected profit and loss statements from their applicants to review their existing track record of liabilities, repayments trend, and sufficient coverage for their interest debt service
  • Retailers need to be prepared with their latest profit and loss statements, whenever they need to approach a bank or financial institution for a loan or overdraft, or other credit facilities.
Know your P&L
Components of

Profit and Loss statement

A profit and loss statement consists of several components which affect the business, and each component includes varying amounts depending on the type of transaction.

Net sales

Net sales/ Revenue is the total value of money that the company generates by selling its products or services adjusting from the returned goods value.

Cost of Goods Sold
Gross Profit/Loss
Direct Expenses
Indirect Expenses:
Net Profit/Loss

Net profit is the actual profit or loss that a business made over a financial period adjusting the indirect expenses and indirect income from the gross profit. This actually helps in easier identification of whether the business can generate returns from the investment made and detect where the business lags in generating profits.

Retail Profit and Loss (P&L) statement format

The profit and loss statement is categorized into two different formats. Depending on the need and mode of analysis, each business chooses its preferred mode of format.

Vertical format

The Vertical format profit and loss statement is different from the Horizontal format, which is simple to arrive at using the data from trial balance. The vertical format of P&L in which the analysis flows from top to bottom, by aggregating the income and expenditure ledger balances from trial balance to find the net profit/loss for the specified period.

All companies should necessarily use vertical format as per Schedule III of Companies Act, 2013.

Horizontal format

A Horizontal format profit and loss statement considers the differentiation of direct vs. indirect income and expense made for a period in which the analysis flows from left to right in a horizontal manner with expense ledgers on the left side and income ledgers on the right side. Usually, for horizontal P&L format, "T-shaped structure" is followed. The first/upper section of the P&L horizontal format represents trading account transactions, while the second/bottom section represents the indirect transactions for the period. Traditionally, non-companies prefer this format for their P&L analysis.

How to prepare Profit and Loss statement in excel?

Preparing a profit and loss statement needs basic skills of excel to simplify the calculation and get accurate results. The steps that are to be followed to prepare a P&L statement in Excel are as follows:

  • Step 1 : Prepare trail balance considering all the ledgers. In trial balance, the total of debits and credits should be matched, ensuring the accuracy of ledger posting.
  • Step 2 : Prepare the trading account by adding the opening stock, purchases, direct expenses under the debit side and sales, direct income, and closing stock on the credit side.
  • Step 3 : Identify the gross profit/loss by finding the difference in trading credit and debit totals. If the trading credit is more than the debit, then the resultant value will be gross profit, similarly if the trading credit is less than the debit, then it will result in gross loss.
  • Step 4 : Bring down the gross profit or loss to the respective credit or debit side of the profit & loss account and adjust the indirect incomes on the profit & loss account credit side and indirect expense on the profit & loss account debit side.
  • Step 5 : Now identify the net profit/loss by finding the difference in profit & loss account credit and debit totals. If the profit & loss account credit is more than the debit, then the resultant value will be net profit, similarly if the profit & loss account credit is less than the debit, then it will result in net loss.
How to create a

Retail P&L statement with Gofrugal?

Creating P&L is as easy as generating invoices for your customer based on their purchases. This single step method opens up your eye to transform from multi-step, time-consuming operation and helps you understand your business better.

Open the integrated accounting application "AccountsEasy" and navigate to the reports menu. Select "Financial statements" and then "Trading Profit & Loss" report. The wait is over. You can now see the profit and loss statement for the selected period. The transaction that happened in the ERP will be automatically updated.

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Examples of

Profit and Loss statements

In this profit and loss statement example, we could see it is divided into 2 sections - Trading account in the first half and the P&L account in the second half. The trading account starts with the opening stock entry on the debit side. After which the net purchase and other freight charges incurred in the procurement of raw materials are adjusted. Similarly, on the credit side, the net sales are adjusted with the closing stock value. Now by comparing the credit and debit sides, the gross profit/loss can be found.

After which the gross profit/loss can be brought down to the P&L account. If the trading account ends with gross profit, it will be brought down to the credit side, similarly if its gross loss, it will be brought down to the debit side. After which the indirect incomes and expenditures are adjusted respectively on the debit and credit side. Then the net profit/loss arrives similar to how we found the gross profit/loss.

Benefits of the retail Income statement

There are a variety of financial statements that cater to different needs of a business in all aspects. The retail income statement, also known as retail profit and loss statement, is a financial statement that flourishes the below benefits for the business

Helps businesses to track whether they are progressing on the right path, making the expected profit from the business

Helps in comparing the performance with the previous year's statements to identify the growth rate

Infers where to reduce the expense, where the money gets blocked and how to increase the net profit

Facilitates the interpretation of business performance and the taking of informed decisions at any time

Calculates the operational efficiency of the business

Determines the ability to generate revenue for a longer term

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Gofrugal retail

Profit and Loss statement at a glance!

  • Group-wise summary and ledger-wise detailed formats can be generated.
  • Generation of both Horizontal format and Vertical format profit and loss statement can be done.
  • Consolidated locations reports, as well as location-by-location reports are also available.
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Frequently Asked Questions

Why is the Profit and Loss statement important ?

The major purpose of profit and loss statement is to analyze a company's income and expenditure over a financial year or any specified period. A profit and loss statement is one of the major financial statements required in a business.

What is the difference between the Profit and Loss statement and balance sheet ?

The Balance sheet and P&L statement are the financial statements that solve the different purposes of the business needs. A balance sheet gives the data on status of the business in terms of assets and liabilities on any given date. Whereas, profit and loss statement infers exact details of expenses and income earned over a period. A balance sheet gives the current stand of the business whereas a profit and loss statement helps in comparing P&L statement for 2 different periods and understanding the growth curve.

Why is Gofrugal ERP the best for Profit and Loss statement?

Gofrugal's integrated accounting software helps the business to automate their GST and accounting calculations which in turn generates impactful business statements such as income statement, balance sheet and cash flow statement without the need for a individual manpower to generate this statement yet eliminating the manual error and provides accurate data. This makes the Gofrugal to be used by major businesses to manage their business end to end from purchase to final accounts and be the best for profit and loss statement generation.

How to download free profit and loss statement generation software?

You can download and experience the Gofrugal profit and loss statement software free for 15 days by clicking below.