Profit And Loss
EasyERP accounting software provides you with all necessary instruments for financial and investment operations. As you may know, one of the most important reports for investment purposes is the profit and loss statement, in case that you are unfamiliar with the term here is a quick explanation.
A company’s profit and loss statement also called its income statement, summarizes its’ income and expenses for a quarter or a year. But in EasyERP you can customize the time period of the report using the custom dates option. The term “profit and loss” is often shortened to P&L statement.
Investors use it to determine if the company is earning a profit or taking loses because it is the best way to determine is the company profitable or not.
To open up the P&L statement in EasyERP accounting software simply tap on the Profit and Loss button in the Accounting section, as you can see here:
When you press on the Profit and Loss you will see a report that looks like this:
P&L statements use accrual accounting method which counts revenues and expenses when they are incurred, not when the money is actually exchanged. EasyERP accounting software uses a multi-step P&L statement. One of the many convenient instruments that EasyERP has to offer, is that you can break down every one of the following values, to see what they consist of. So let us break down the chart for you.
The top sections are Ordinary Income and Expenses. Ordinary income is the pretax profit earned from selling its product or service, in other words, it is any type of income that comes about through the daily operations of a company. This does not include income earned from the sale of capital assets, such as is the case with land or long-term equipment.
Any expenses incurred in the ordinary course of business. Business expenses are deductible and are always netted against business income.
A little advice, although it is not necessary to include receipts for business expenses when you file your tax return, many tax preparers will ask for detailed, itemized copies of your expenses before they will submit the return. Business owners should keep these kinds of records for a minimum of 7 to 10 years from the date of filing.
Gross profit is one of several important measurements of company’s profitability. Specifically it is derived from taking sales revenue and subtracting the cost of goods sold, which includes the direct cost of raw materials and labor involved in making the products. What is left, gross profit, tells management and other interested parties how much revenue remains after subtracting the cost of producing the goods. This value is often used to compare against other year results, other company’s results, or derived profitability ratios. Analysts often use gross profit to calculate gross profit margin, which is the same metric but represented as a percentage of revenue.
Gross profit values a company’s efficiency at using labor and supplies. The metric only considers variable costs, that is, costs that fluctuate with the level of output:
- Direct labor, assuming it is hourly or otherwise dependent on output levels;
- Commissions for sales staff;
- Credit card fees on customer purchases;
- Equipment, perhaps including usage-based depreciation;
- Utilities for the production site;
- Shipping, etc.
As generally defined, gross profit does not include fixed costs, or costs that must be paid regardless of the level of output: rent, advertising, insurance, salaries for employees not directly involved in a production, and office supplies. All of these are stored in the Expenses field, keep in mind that it only includes fixed expenses from the company’s ordinary course of business.
Net ordinary income is a value that is calculated by subtracting the total expenses that derive from the ordinary business activity from the gross profit, which we have mentioned before. This measurement shows the overall profitability of the company with taking into the equation the incomes and expenses only from the ordinary sources.
This fields in the P&L statement of the EasyERP Accounting software shows income derived from transactions not involved in daily operations of a business. For example, rent received from other business properties, foreign exchange gains and profit from the sale of non-inventory assets.
A non-operating expense is an expense incurred by a business that’s unrelated to its core operations. The most common types of non-operating expenses are related to depreciation, amortization, taxes not connected to the main business, the interest charges or other costs of borrowing.
Net income, also known as bottom line, most of the people know it by this name. But understanding what it really means is vital for the business owner and potential investors. A company’s bottom line is the same as total earnings or profit. It is an important measure of how profitable is an organization is over a period of time. It can be distributed to the holders of common stock as a dividend or retained by the company. The dividends are calculated as a part of this number. Keep in mind that this value is one that investors look at the most. Because companies making a profit consistently are going to hold more promise for the long run, both for the company itself and for potential investors.
A dividend in EasyERP accounting module is the process of sharing a part of a company’s earnings, to a class of its shareholders. Usually, it is decided by the board of directors. Dividends can be issued as cash payments, as shares of stock, or other property.
The rate of dividends may be quoted in terms of the cash amount each share receives. It can also be quoted in terms of a percent of the current market price, which is referred to as the dividend yield.
A company’s net profits can be allocated to shareholders via a dividend, or kept within the company as retained earnings. Dividend payments must be approved by the shareholders and may be structured as a one-time special dividend, or as an ongoing cash flow to owners and investors.
Retained earnings are the portion of the company’s net earnings that it doesn’t pay off to shareholders as dividends. It is also recorded under shareholders’ equity on the balance sheet. The formula calculates retained earnings by adding net income to or subtracting any net losses from, beginning retained earnings, and subtracting any dividends paid to shareholders. The company keeps this money and reinvents it in the business, or uses it to pay off a portion of its debts. You may also hear retained earnings referred to as the retention ratio or retained surplus.
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