A business needs to keep track of all their income - REVENUE and EXPENSES. Any money coming in to a business is recorded as revenue. Any money going out of a business is known as an expense. For a business to be profitable their revenue must be greater than their expenses. Businesses will generate a profit and loss statement to calculate their annual profitability.

Revenue (income) Sales – money from the sales of good s they trade in – i.e. music shop CD’s Fees – money received from work done for a client – also known as services rendered. Commissions earned – money received from a client based on the value of the service. Interest received – from financial institutions. Dividends Rent

Expenses (costs) Wages –paid to employees Rent – paid for the use of a business premise Insurance – premiums paid to insurance companies Rates and taxes – government and local government charges Advertising and promotion Depreciation – the loss in value of assets that occurs over time (computers)

A capital item is not included in a profit or loss statement. These are things such as a vehicle or a building. They don’t directly bring revenue into a company like selling an item or providing a service.

Prepare a profit and loss statement for Jenny’s Jam Shop for June 30. The following revenue and expenses were recorded – Sales $546,000, Interest Paid $3560, Wages $297,800, Advertising $5890, Rent $3400, Telephone $3789, Insurance $5500, Water Rates $3900, Interest received $560.

Cost Of Goods Sold The profit and loss statements that we just looked at are rather simplified. They do not take into account the cost of the items on the shelves of the shops. A business has to buy the goods – an expense and then this needs to be taken away from any income. There is a procedure that you need to follow.

To calculate the cost of goods sold, a business counts its stock at the beginning and the end of the year (stock take sale). These figures – plus the value of the goods purchased during the year are used to calculate the C.O.G.S.

A shop has stock valued at $220,000 at the start of the year. During the year they purchase $278,000 worth of goods. When the shop did a stock take at the end of the year the stock was valued at $189,000. Calculate the cost of goods sold during that year.

Gross Profit and Net Profit To just calculate the COGS is not realistic for a business – it needs to be incorporated within a profit and loss statement. Gross ProfitGross Profit is the difference between sales and the COGS – the profit a company makes on selling its goods. Net ProfitNet Profit is the profit margin once all other costs have been taken out.

Make up a profit and loss statement for Fred’s Shop has the following expenses and revenue for the year ended June 30: wages $98500, Sales $885,000, rent $22500, rates and taxes $2400, insurance $6675, opening stock $138000, electricity $1900, purchase of stock $99200, depreciation $3480, telephone $1235, advertising $4445, closing stock $116590, interest paid $568.

Fred’s Shop Profit and Loss Statement Year ended June 30 Sales$885,000 Less – cost of goods sold Opening Stock$138,000 Plus – purchases$ 99,200 Goods available for sale$237,200 Less – closing stock($116,590) $120,610($120,610) Gross Profit$764,390 Less – expenses Wages$98,500 Rent$22,500 Insurance$6675 Rates and Taxes$2400 Electricity$1900 Telephone$1235 Depreciation$3480 Advertising$4445 Interest Paid$568 $141,703($141,703) Net Profit$622,687