G/L Profit & Loss statement

The Profit and Loss Statement provides a detail of the income and  expenses for a company.  In addition to providing the balance of  each account, a percentage is shown.  This is the percentage the  total represents of the section (income or expense) as a whole.  If  the total income is $1,000, and $100 was from parts, it would be 10%.

The report enables the management to know exactly how much profit  has been earned in a given period.  By looking at the percentages,  it is easy to determine the greatest areas of income, and the  leading cause of expenses.

Profit is enhanced when increasing the  income while decreasing expenses.  Consequently, if it is known that  one account is a leading source of income, it may be possible to  enhance the performance of that account, or overcome problems that  lead to a lesser income from other sources.

When reviewing  expenses, some may be out of proportion to the operation of the shop  as a whole, and can be evaluated accordingly.  Perhaps some  reductions may be necessary.  A typical example would be Mac's Repair Center.  Their accountant  has recommended a 10% increase in profits.  They evaluate the income  and find that it is not really possible to bring in more business.  Therefore, expenses must be evaluated.  They review the accounts,  flagging all of the fixed amounts that cannot be changed (rent,  utilities, etc.).  By totaling the percentages, they find that 40%  of the expenses cannot be changed.  Consequently they need to reduce  the remaining 60% to 50%.  They find significant expense in advertising, but experience has shown that few customers come  because of their ads.  They trim 5% off the expenses by running only  the directory listing in the phone book.  They realize that one  employee, who goes to school and works part time, would like fewer  hours.  1% is shaved from the total.  They have several phone  services that are never used.  Here goes another 1%.  They find that  overstocking of inventory is a problem.  Suddenly, another 3% is  gone.  By reviewing the expenses, they have saved a significant  amount of money, and increased profits. This money was then saved  to be used when the economy hit a downturn, and residual funds would  be necessary.