Financial Statements of a Company
The statement of profit and loss
Group revenues and expenses under the Schedule III heads and find profit before tax.
The statement of profit and loss groups the year's figures under set heads:
- Revenue from operations: sale of products, sale of services, and other operating revenue.
- Other income: interest, dividends, net gain on sale of investments, and other non-operating income.
Expenses:
- cost of materials consumed;
- purchases of stock-in-trade;
- change in inventories of finished goods, work-in-progress and stock-in-trade;
- employee benefits expense (salaries, wages, bonus, contributions to funds);
- finance costs: interest only (bank charges go to other expenses);
- depreciation and amortisation;
- other expenses (rent, power, repairs, advertising, and so on).
Profit before tax = total revenue − total expenses (after any exceptional and extraordinary items). Then tax is deducted, giving the profit for the period, and earnings per share are shown.
Example: revenue 5,00,000; purchases 2,00,000; salaries 60,000; interest on a loan 8,000; depreciation 12,000. Expenses 2,80,000, so profit before tax is 2,20,000.
Revenue − expenses = profit before tax.
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