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What is a Profit and Loss Statement, and what is its format?

[ecis2016.org] Read on know all about Profit and Loss Statement, which refers to a financial statement prepared by an organisation, summarising the revenues, costs, and expenses incurred for a specified period.

A profit and loss (P&L) statement is a financial statement that summarises the revenues, costs, and expenses incurred by a company for a specified period, usually a quarter or fiscal year. An organisation’s ability to generate profit by increasing revenue, reducing costs or both can be gleaned from these records. They are usually presented on a cash basis or accrual basis.

P&L statements are one of three financial statements every public company issues quarterly and annually, and balance sheets and cash flow statements. A business plan’s profit and loss statement is often the most popular one since it shows the amount of profit or loss generated by the company.

As the cash flow statement, the P&L or income statement shows changes in accounts over a period of some time. The balance sheet highlights what the company owns and owes at a specific point in time. A company can record revenues and expenses before cash changes hands. 

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Importance of the Profit and Loss Statements

It is important to complete P&L statements because many businesses are required to by law or their association membership. A company’s P&L statement can also help the management team (including its board of directors) understand the business’s net income, which can be helpful for making decisions. 

Should all companies be required to prepare P&L Statements?

It is a new requirement for all companies to include cash flow in addition to the balance sheet and profit & loss. As per AS 3 of Accounting standards issued by the ICAI, previously only listed companies under clause no. 32 listing agreements had to prepare cash flow statements.

Sole Traders & Partnership Firms: Format for Profit & Loss Account

For sole traders and partnership firms, there is no specific format for a Profit & Loss Account. This can be prepared in any format. However, separate the gross profits and net profits. These entities usually consider a ‘T shaped form’ for preparing a P&L account. T-shaped P&L accounts include two sides – debits and credits. Before preparing the Profit & Loss Statement, the trading account must be prepared. 

What is the proforma for a Trading and Profit & Loss Account?

Particulars Amount Particulars Amount
To Opening Stock xyz By Sales xyz
To Purchases xyz By Closing Stock xyz
To Direct Expenses xyz
To Gross Profit C/F xyz
xyz xyz
To Operating Expenses xyz By Gross Profit B/F xyz
To Operating Profit xyz
xyz xyz
To Non-operating expenses xyz By Operating Profit xyz
To Exceptional Items xyz By Other Income xyz
To Finance Cost xyz
To Depreciation xyz
To Net Profit Before Tax xyz
xyz xyz

Format of Profit & Loss Account for Companies

By Schedule III of the Companies Act, 2013, companies must prepare a profit and loss statement.

The format described in Schedule III – Statement Of Profit & Loss can be found below 

Name of the Company_________

Statement of Profit and Loss for the financial year ended_________

Particulars Note No. Amount for the current reporting period (in Rs) Amount for the previous reporting period (in Rs)
Income      
a) Income from Operations   xyz xyz
b) Other Income   xyz xyz
Total Income   xyz xyz
Expenses   xyz xyz
a) Cost of materials consumed xyz xyz
b) Purchases of Stock-in-Trade   xyz xyz
c) Changes in inventories of finished goods, Stock-in -Trade and work-in-progress   xyz xyz
d) Employee benefits expense   xyz xyz
e) Finance costs   xyz xyz
f) Depreciation and amortisation expenses   xyz xyz
g) Other expenses   xyz xyz
Total Expenses   xyz xyz
Profit/(loss) before exceptional items and tax   xyz xyz
Exceptional Items   xyz xyz
Profit/ (loss) before tax   xyz xyz
Taxes:   xyz xyz
Current tax xyz xyz
Deferred tax xyz xyz
Profit (Loss) for the period from continuing operations   xyz xyz
Profit/(loss) from discontinued operations   xyz xyz
Tax expenses of discontinued operations   xyz xyz
Profit/(loss) from Discontinued operations (after tax)   xyz xyz
Profit/(loss) for the period   xyz xyz

Can an e-form of profit and loss accounts be sent to the registrar?

A company must submit e-Form 23ACA to the Registrar in order to file a Profit & Loss Account. The form must be accompanied by a copy of the audited Profit & Loss Statement.

To submit the e-form, a CA or CMA or CS who practices full-time must digitally sign it, certifying that the information entered in 23ACA is accurate, and attaching the audited Profit & Loss Account.

Source: https://ecis2016.org/.
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Debora Berti

Università degli Studi di Firenze, IT

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