Importance Of Profit And Loss Account Accounting Essay

Importance Of net income And Loss Account Accounting EssayThe Profit and Loss Account is a Financial Statement which summarizes a companys gross and expenditure for a specific period of time, usually prepared annually or quarterly. These statements provide information that shows the ability of a company to generate meshwork by increasing its revenues and reducing costs. The Profit and Loss Account is also known as a Statement of Profit and Loss, an Income Statement or an Income and expense Statement.IMPORTANCE OF internet AND LOSS nebing Profit and Loss Account represents a companys ability to generate income through their descent operations. Many times businesses willing need financing to avail create the facilities for their operations. Smaller companies usually obtain bank loans that are based on the amount of income a company has get from past operations. Solid Profit and Loss history is essential for getting the best loan terms. Profit and loss statements are important also because many companies are required by law or association membership to complete them. Apart from this, a profit and loss statement will help the company to understand their net income, which may be helpful in decision-making processes. That is, it gives one the information needed to grow or expand his business.KEY ITEMS OF THE PROFIT AND LOSS ACCOUNT Income from gross revenueCost Of Goods SoldGross Profit direct ExpensesNet Profit from OperationsOther IncomeOther ExpensesNet ProfitSTANDARD STRUCTURE OF A CORPORATE PROFIT AND LOSS ACCOUNTProfit and Loss Account for the year endedParticularsRs.ParticularsRs.To Gross Loss.By Gross Profit.To Salaries.By Interest Received.To Rent.By Commission Received.To Rent and Rates.By Other Receipts.To tax write-off Allowed.By Etc., Etc..To Commission Allowed.By Net Loss (Transferred to Capital Account of the Trader)xxxxTo Insurance.To Bank Charges.To Legal Charges.To Repairs.To Advertising.To Trade Expenses.To Office Expenses.To braggy Debt s.To Travelling Expenses.To Etc., Etc..To Net Profit (Transferred to Capital Account of the Trader)xxxxProfit and Loss Account for the year ended(Statement Form)ParticularsRs.Rs.Rs.Income From SalesSales.Less Sales Returns.Sales Discount..Net Sales.Cost Of Goods SoldStock as on 1stJanuary.Purchases.Less Purchase Returns.Net Purchase.Cost Of Goods open for sale.Less Stock as on 31stDecember.COGS (Cost Of Goods Sold).Gross ProfitxxxxxxOperating ExpensesSelling Expenses-Sales Salary.Advertising Expenses.Insurance Expenses selling.. hive away Supplies Expenses.Sundry Selling Expenses.Total Selling Expenses.General ExpensesOffice Salaries.Taxes.Insurance Expenses general.Office Supplies Expenses.Sundry General Expenses.Total General Expenses.Total Operating Expenses.Net Profit from OperationsxxxxxxOther IncomeRent Income.Other ExpensesInterest Expenses.. give the axe PROFITxxxxxxGIVEN BELOW IS THE PROFIT AND LOSS ACCOUNT OF TATA blade LIMITED -(This will help us understand the purpose of a Profit and Loss Account and also enable us to understand how a Profit and Loss statement is made.)Profit Loss Tata Steel LtdMar12Mar11Mar10Mar0912 Months12 Months12 Months12 MonthsINCOMESales Turnover37,005.7131,901.9426,757.6026,843.53Excise Duty3,167.202,594.591,816.952,495.21NET SALES33,838.5129,307.3524,940.6524,348.32Other Income0.000.000.000.00TOTAL INCOME34,389.2729,635.2625,272.2424,653.68EXPENDITUREManufacturing Expenses5,608.384,463.653,803.333,349.96Material Consumed9,696.659,222.278,491.428,279.44Personal Expenses3,047.262,618.272,361.482,305.81Selling Expenses1,832.40109.3682.1761.49Administrative Expenses2,119.561,922.331,622.771,518.83Expenses Capitalised-478.23-198.78-326.11-343.65Provisions Made0.000.000.000.00TOTAL EXPENDITURE21,826.0218,137.1016,035.0615,171.88Operating Profit12,012.4911,170.258,905.599,176.44EBITDA12,563.2511,498.169,237.189,481.80disparagement1,151.441,146.191,083.18973.40Other Write-offs0.000.000.000.00EBIT11,411.8110,351.978,154.008,508 .40Interest1,925.421,686.271,848.191,489.50EBT9,486.398,665.706,305.817,018.90Taxes3,162.632,912.442,168.502,114.87Profit and Loss for the Year6,323.765,753.264,137.314,904.03Non Recurring Items372.661,107.89909.49297.71Other Non Cash Adjustments0.000.000.000.00Other Adjustments0.004.540.000.00REPORTED PAT6,696.426,865.695,046.805,201.74KEY ITEMSPreference Dividend0.000.0045.88109.45 truth Dividend1,165.461,151.06709.771,168.95Equity Dividend (%)119.97119.9779.98159.95Shares in Issue (Lakhs)9,712.149,592.148,872.147,305.92EPS Annualised (Rs)68.9571.5856.8871.20The portion highlighted by a black box shows the Profit earned by Tata Steel Limited from 2008 -2012HOW THE PROFIT AND LOSS ACCOUNT HELPS THE CORPORATE DECISION MAKERS TO SHAPE THEIR DECISIONS?A Profit and Loss account provides a collection of operating data that toilette be used by corporate decision makers to improve corporate operations. Regular review of this statement can help the entrepreneur to adjust the strategic pa ths of the company based on the prevailing economic conditions. A Profit and Loss statement also helps outside investors to measure a firms economic viability in the long run. AlsoAnalyzing a statement of profit and loss gives corporate leaders the tools necessary to measure competitors progress in the market, hence improve their market share.The Profit and Loss account gives a clear view of all the expenses and incomes of the firm, hence a regular analysis of these statements help firms cut down their expenses.Creating a forum through which business unit leaders discuss and help top leaders set performing segments apart from activities that generate less than mediocre revenue. By reviewing the firms revenues and expenses, management can decide which segment to sell.A profit-and-loss report indicates to the rest of the world the corporate segments that are thriving, emphasizing products that positively affect the corporate bottom line.