What is Profit and loss statement?

What it shows, with an example

Illustrative figures for a small hardware shop over one fiscal year:

Two lines often confuse owners. Sales exclude VAT, because output VAT belongs to the IRD, not to the shop. And cost of goods sold is not what you bought during the year. It is opening stock plus purchases minus closing stock. So the way stock is valued, under FIFO or weighted average cost, changes the profit figure.

Profit is not cash

A shop can show a profit and still be short of money. Credit sales not yet collected count as income. Stock on the shelves has been paid for but is not yet counted as a cost. A loan repayment takes cash out but is not an expense. So read the statement together with receivables (what customers owe you), payables (what you owe suppliers) and your cash position. For a quick check on one item, the profit margin calculator works out margin from cost and selling price.

In Nepal

Taxable business income under the Income Tax Act 2058 starts from the profit in the annual accounts, adjusted for items the Act treats differently, such as depreciation. The accounts follow the Nepali fiscal year. An accountant or auditor usually prepares them from the year’s records after the Asar close. The fiscal year closing checklist covers what to have ready. Confirm your own reporting obligations with the IRD or your accountant.

Kuver Books does not produce a profit and loss statement. Its product profitability report shows cost of goods sold, gross profit and margin per product. Your accountant prepares the statement from the exported records.