Entrepreneurship - P&L Statement

You will understand profit and loss, components of a simple profit and loss statement, and the importance of a profit and loss statement.

You will calculate profits using gross income, total expenses, and cost of goods sold.

You will analyze monthly profit and loss statements for a school store and calculate profit margin percentages.

Profit – the net income that remains after deducting all expenses and costs of doing business

Net Loss – the loss that results when expenses and costs are greater than income

Profit and Loss Statement – a financial statement or record that helps to track a business; also called a P&L

Gross income – the income generated from sales; calculated by multiplying price by quantity; also referred to as gross sales

Inventory – a list of goods or materials in stock and available to be sold

Cost of Goods Sold – the cost of selling goods or items; calculated as theopening merchandise inventory plus purchases minus closing merchandiseinventory

Expenses – cost associated with sales, administration, and advertising

Profit Margin – net income or loss divided by gross income/sales; written as apercentage

To understand if the store is making money

To understand what specific store products are making money and whichmay be losing money

To reduce expenses if needed

To change product pricing to increase revenue

To plan for future purchases including inventory and other expensesassociated with running the business

To understand if the store can afford future investments (e.g. increasingstore space, hiring more help, upgrading computer systems etc.)

Open New Doc: Title it- P&L Components

Insert table: 2 Columns by 11 Rows

Title Column 1 - Income Components

Title Column 2 - Possible Expenses

Make a list of each

Gross income

Cost of goods sold 

Expenses

Net income 

Gross income is income generated from sales

It is the price of a product multiplied by the quantity sold

For example, if a store sold only beaded necklaces and each necklace cost $5.00 each, the gross income would be the number of necklaces sold multiplied by the $5.00 price per necklace.

20 Necklaces Sold at $5.00 ea = Gross Income of = $100.00

Cost of goods sold is the cost of selling goods or items during a specified period of time. 

The cost of goods sold is the opening merchandise inventory plus purchases made during the period less the closing merchandise inventory.

Expenses include selling, administration, and operating expenses.

Expenses specifically may include rent, salaries, and advertising.

Net income is gross income minus the cost of goods sale and expenses. 

This is the profit made on sales. 

If the cost of goods sold and expenses are greater than the gross income, the business had not made a profit.

The business would record a net loss.