Formation of the Profit and Loss Statement.

For the formation of the Profit and Loss Statement it is necessary to have learned both the analysis of the concepts that correspond to the sale of goods, such as expenses and products that correspond or not to the main activity of the deal.
The Profit and Loss Statement begins by noting the heading which must contain the following information:
1. Business name.
2. The indication to be Statement of profit and loss.
3. The period to which said state refers.
How to obtain the profit of the exercise

Selling Expenses + Administrative Expenses + or- Loss or profit in expenses and financial products

equal to

Gross profit or profit on sales - Operating expenses = Operating profit + or- Profit or loss on other expenses and products = Profit for the year

The last piece of information in the previous paragraph is very important, since the Profit and Loss Statement must indicate the period it includes; for example, from January 1 to December 31; not like the Balance Sheet, which refers to a certain date, for example, December 31st.

After the heading, all the concepts that comprise the sale of merchandise must be analyzed, until the gross profit or loss is determined, as follows:
1. Total sales are noted; if there are returns and rebates on sales, their value is subtracted from those sales to obtain net sales.
2. The value of the initial merchandise inventory is noted.
3. Purchases are noted; if there are purchase expenses, their value is added to them to obtain the total purchases. " - '
4. The value of the total purchases is subtracted from the value of the returns and rebates On purchases, if any, to obtain the net purchases.
5. The value of the net purchases is added to the starting inventory to obtain the total merchandise, which is simply called a sum.
6. From the sum, which is the total of merchandise, the value of the final inventory is subtracted, to obtain the cost of what is sold.
7. Net sales, which appear first, are subtracted from the cost of what was sold, to obtain the gross profit or loss. It is utility when the cost is less than the amount of net sales; loss, otherwise.
Next, the expenses and products that correspond or not to the main activity of the business should be analyzed, until the profit or loss for the year is determined, in the following order:
8. First, the selling expenses are detailed, then the administrative expenses and, finally, the financial expenses and products.
9. Next, the totals of the selling expenses, administrative expenses and financial expenses are added, to obtain the total operating expenses, which must be subtracted from gross profit, to determine operating profit.
10. Finally, the operating profit must be subtracted or added, as the case may be, the net result among other expenses and products to obtain the liquid or net profit for the year.
To illustrate the above explanations, a complete Profit and Loss Statement is included on the next page.
Relationship between the Balance Sheet and the Profit and Loss Statement. To verify that the Profit and Loss Statement complements the Balance Sheet, the profit or loss that said statement shows It must be equal to the increase or decrease obtained from comparing the Capital of the previous Balance with the Capital of the Balance current.
Also, the ending merchandise inventory must be the same in both documents.
In accordance with the above, the only points of contact that the Balance Sheet has with the State Profit and loss are: the profit or loss for the year and the final merchandise inventory.