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Profit & Loss report may also be referred to as:
- Income statement
- Earnings statement
- Revenue statement
- Operating statement
- Statement of operations
- Statement of financial performance.
The Profit & Loss report is undoubtedly one of the most important reports for business owners. Here are 3 key functions of the report:
- Required filing by Singapore and Malaysia authorities - While this only applies to companies that meet the requirements by ACRA and SSM respectively, it is generally a good idea to start early.
- Applying for small business loans - With a proper Profit & Loss report, a small business will find it much easier to get their loans approved.
- Business decision-making processes - With a clear understanding of a businesses' net income, a business owner will be able to make better decisions and put the business on the right track for growth.
So what exactly is a Profit & Loss report?
It is basically is a 3-part document that shows a business' Total Income (Revenue), Total Cost of Sales and Total Expenses. By deducting Total Cost of Sales and Total Expenses from the Total Income (Revenue), a business is able to determine the net earnings/net income of a given period.
Total Income less Total Cost of Sales = Gross Profit/Gross Income
Gross Profit less Total Expenses = Net Earnings/Net Income
How is this bit of information helpful? - Occasionally, a business may report high revenue but negative net earnings/net income in a given period due to higher expenses. With the help of the report and some financial formulas - Operating Expense Ratio (OER) / Profit Margin Ratio, a business owner will have a better understanding of a business' effectiveness in generating income.
How to create a Profit & Loss report?
Despite being one of the more complicated reports to prepare, with a little accounting knowledge and some practice, anyone can produce the report as long as the all items under the income, cost of sales and expenses have been recorded correctly. Of course, Premium Financio users can easily generate this report and 11 other reports with just a few clicks.