Profit and Loss statement:
The Profit and Loss statement is the primary measure of business performance.
As the name suggests, this particular report measure whether the business has made a profit in a certain period, or suffered a loss. Also called Statement of Financial Performance. The Profit and Loss statement measures revenues and expenses to determine the profit / loss for the organisation over a particular period of time. Revenue is what the business earned in exchange for goods or services it provided. An example in the real estate context would be revenue earned from selling property or managing property for professional fees / commission.
Expenses are the costs incurred to earn the revenue. Examples of expenses would include wages paid to staff, motor vehicle expenses, advertising expenses and stationery.
It is important that revenues are matched against expenses. In simple terms this means that only revenue earned and expenses incurred during the relevant period should be included in the report. This process of matching may involve adjusting figures prior to the preparation of the profit and loss statement to ensure that only the correct data is included.
A simple Profit and Loss statement would look as follows:
Brown Partners Real Estate
Profit & Loss Statements as at 30 June 2008
|
|
2006/7
|
2007/8
|
|
Revenue
|
|
|
|
Professional Fees / Commissions
|
190,000
|
230,000
|
|
Property Management Fees
|
75,000
|
95,000
|
|
Advertising recovered
|
2,000
|
2,460
|
|
Other
|
1,000
|
2,050
|
|
Interest Received
|
1,000
|
1,000
|
|
|
|
|
|
Total Revenue
|
269,000
|
330,510
|
|
|
|
|
|
Expenses
|
|
|
|
Rent
|
25,000
|
25,000
|
|
Salaries and Wages
|
32,000
|
35,000
|
|
Commissions
|
120,000
|
145,000
|
|
Bank Fees
|
4,500
|
4,700
|
|
Information Technology / Computers
|
5,400
|
2,000
|
|
Interest Paid
|
5,000
|
5,000
|
|
Stationary and Postage
|
2,000
|
2,000
|
|
Printing and Promotion
|
10,000
|
10,000
|
|
Subscriptions
|
1,500
|
1,800
|
|
Telephone
|
1,000
|
1,000
|
|
Superannuation
|
17,100
|
18,000
|
|
Motor Vehicle
|
3,500
|
4,200
|
|
|
|
|
|
Total Expense
|
227,000
|
253,700
|
|
|
|
|
|
Net Profit
|
42,000
|
76,810
|
Once the profit and loss statement is produced, the figures contained within the report could then be matched against the pre-prepared budget to determine whether the business is performing as expected, or above or below expectations. Alternatively, comparisons could be made with figures derived from previous periods (or the same period in previous years) to measure growth and compare general performance). In the above example, figures are compared with those achieved in the previous financial year.
The method of comparing current results against budget (or previous results) is called variance analysis. Generally, when a profit / loss statement is produced, a variance analysis will be included to inform the end user of the statement of how the business is performing against predetermined criteria. More information on variance analysis is contained further in this learning manual.