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  • Mohammed Rafiq

Why Your Profit And Loss Statement Matters

A number of entrepreneurs and owners of small to medium sized businesses do not feel entirely comfortable trying to decipher their monthly financial reports, including their profit and loss statement. Even more do not understand how to properly record and prepare data which will be used to calculate their company’s profits and losses.

Why Well-Recorded Profits And Losses Are Critical To Your Business

Small businesses are not required to lodge profit and loss statements with the Australian Tax Office (ATO). But having these prepared regularly will give you a crystal clear idea of the financial health of your company and make the best decisions on what you need to do for your company to thrive.

How To Determine Profits And Losses

Generally speaking a company’s profits and losses will be calculated by subtracting any expenses from revenues during a given period (this period is typically for a m

onth, a quarter or a year). A positive number indicates that there has been a profit made. A negative number (typically enclosed in parentheses) indicates that the business has incurred a loss for that period.

What To Expect From A Profits And Losses Statement

A profit and loss statement will contain the following information:

  • Revenue: This refers to all money earned from your ordinary day-to-day business operations, such as services provided, the sales of goods, dividends, interest received, rental income and rebates.

  • Gross Profit: This is the difference between the cost of goods sold and your sales. This number is particularly useful in showing how efficiently materials and labour have been used to produce goods and services.

  • Cost Of Goods Sold: This refers to all costs incurred to acquire items or inventory sold in your business including the purchase price, freight charges and insurance and import duties.

  • Expenses: Expenses refers to the costs your company has incurred to generate income. The most common expenses include wages, bookkeeping and legal fees, depreciation, interest paid on loans and rent.

Once these numbers have been tallied up, you will receive a “net profit” (or loss) number which is the difference between your company’s gross profit and your expenses.

Seeking Help With Your Bookkeeping

ATP Tax Accountants help Australian entrepreneurs make informed decisions about their business by providing clear and accurate profit and loss statements. To find out more about the services ATP Tax Consultants offers, we welcome you to contact us at 1300 829 484.

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