Financial Analysis – Profit and Loss Statements and Balance Sheets

Financial Analysis – Profit and Loss Statements and Balance Sheets

Items for Creating a 12-Month Income (Profit & Loss) Statement

An income statement outlines a business’s expenses and income over a specific period. One of the key components of the income statement is revenue. According to Hussey & Ong (2017), revenue includes all income items. Therefore, the accountant will need sales receipts, fees related to running the business, gross receipts, and operating revenue. The second key component is the cost of goods sold. The accountant will need information about the cost incurred to create and implement the diversity and training program. The third key component is expenses. According to Macy (2010), expenses are any expenditures made to run a business. They include vendor payment, advertising costs, professional fees, and salaries. The accountant will need information about the business’ daily monthly expenses, such as salaries and advertising costs. The accountant will also need information about the business’ tax expenditure, net profit, and gross profit. Hire our assignment writing services in case your assignment is devastating you. Our team of experts is ready to help.

Primary Distinctions between Profit and Loss Statements and Balance Sheets

According to Chibili (2019), a profit and loss statement shows a business’s ability to generate profit. Consequently, a balance sheet shows a business’s debts and assets based on income and loss. Another distinction is that a profit and loss statement always changes after every accounting period, whereas a balance sheet remains the same. Another difference is that a balance sheet discloses shareholder capital, business liabilities, and assets. In contrast, a profit and loss statement discloses indirect expenses and incomes in a business during a specific accounting period (Collings, 2013). The third difference is that a balance sheet is prepared at the end of the financial year, whereas a profit and loss statement is prepared after a specific time. A balance sheet is also viewed as a package, whereas a profit and loss statement is an account.

References

Chibili, M. N. (2019). The profit and loss account statement. Basic Management Accounting for the Hospitality Industry, 57-70. https://doi.org/10.4324/9781003022305-3

Collings, S. (2013). Financial accounting for dummies. For Dummies.

Hussey, R., & Ong, A. (2017). Statement of profit or loss – Revenue. Corporate Financial Reporting, 112-131. https://doi.org/10.1057/978-1-137-52766-0_7

Macy, A. (2010). The profit and loss statement. Record Label Marketing, 105-123. https://doi.org/10.1016/b978-0-240-81238-0.00006-x

Thacker, R. (2015). A study of income statement concepts. https://doi.org/10.31390/gradschool_disstheses.682

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Financial Analysis – Profit and Loss Statements and Balance Sheets

Okay, we know entrepreneurs take risks… risks for the sake of profit. Clearly, business owners do their best to get the best (highest) return on investment. This comes in profits (money), employee recruiting efforts, employee retention strategies, training/coaching, and overall business development. This requires money and business owners to decide the most efficient financial and human capital resource allocations.
Hypothetical Business Scenario
In 2018, Hamid retired after many years at the VP level in a multinational retail banking services firm. In early 2019, he did his due diligence, completed a competitive analysis and discovered a niche market in the diversity and inclusion training space. Hamid started a consulting business offering diversity and inclusion coaching to retail banks and financial institutions. Since then, he has been laser-focused on building his client base and has been able to achieve and sustain monthly profits since month 8.
As part of the annual 2019 tax reporting process, Hamid’s accountant asks for receipts/invoices and other items that track the incoming and outgoing cash and other business assets.
Questions
What items will the accountant need to create a 12-month Income (Profit & Loss) Statement?
What are the primary distinctions between a Profit & Loss Statement and a Balance Sheet?