Personal Money Management 101

How to Read a Financial Statement : Profit and Loss Account

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Profit and Loss Account
Sales 3,500
Cost of Sales 2,450
Gross Profit 1,050
Operating Expenses  
Salaries and Wages 450
Distribution 200
Rent 45
Depreciation 50
Total Operating Expenses 745
Operating Profit 305
Interest Payable 15
Profit Before Tax 290
Taxation 60
Profit After Tax 230
Dividends 80
Retained Profit 150

The Profit and Loss Account summarizes a business's performance over a period (usually a year).

Sales (turnover): total sales revenues.

Cost of Sales: production overheads, raw materials, employees, product development, changes in stock levels, depreciation.

Gross Profit = Sales - Cost of Sales.

Operating Costs: costs of administration, distribution, marketing.

Operating Profit = Gross Profit - Operating Costs. (also referred to as profit before interest and tax, PBIT).

Profit Before Tax = Operating Profit - Profit
(+ Loss) on Sales of Fixed Assets - Net Interest Payable.