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QFINANCE Calculation Toolkit
Bloomsbury Publishing
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- 288 pages
- English
- ePUB (mobile friendly)
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eBook - ePub
QFINANCE Calculation Toolkit
Bloomsbury Publishing
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About This Book
* 100 key calculations essential for everyday business management
* Essential for the monitoring of the financial health of a company
* Each calculation is accompanied by a worked example to illustrate uses and limits
* Written by professional mathematicians
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Creating a Profit and Loss (P&L) Account
WHAT IT MEASURES
A company’s sales revenues and expenses over a period, providing a calculation of profits or losses during that time.
WHY IT IS IMPORTANT
Reading a P&L is the easiest way to tell if a business has made a profit or a loss during a given month or year. The most important figure it contains is net profit: what is left over after revenues are used to pay expenses and taxes.
Companies typically issue P&L reports monthly. It is customary for the reports to include year-to-date figures, as well as corresponding year-earlier figures to allow for comparisons and analysis.
HOW IT WORKS IN PRACTICE
A P&L adheres to a simple rule of thumb: “Revenue minus cost equals profit.”
There are two P&L formats, multiple-step and single-step. Both follow a standard set of rules known as “generally accepted accounting principles” (GAAP). These rules generally adhere to requirements established by governments to track receipts, expenses, and profits for tax purposes. They also allow the financial reports of two different companies to be compared. Note that in the United Kingdom and several other nations, sales, revenues, and receipts may all be designated as turnover.
The multiple-step format is much more common, because it includes a larger number of details and is thus more useful. It deducts costs from revenues in a series of steps, allowing for closer analysis. Revenues appear first, then expenses, each in as much detail as management desires. Sales may be broken down by product line or location, while expenses such as salaries may be broken down into base salaries and commissions.
Expenses are then subtracted from revenues to show profit (or loss). A basic multiple-step P&L is shown opposite.
Multiple-step pr...