Finance and Bookkeeping - Session 03

The Profit and Loss Statement

Read revenue, delivery costs, overhead, and profit in the right order. Explain a change in the result without confusing recorded profit, cash, and an incomplete month.

The MSP finance task

September revenue is higher than August in the supplied reports, but September net income is lower. To explain the change, follow the report from revenue through delivery costs and overhead. A revenue total alone cannot explain the result.

The report period

A P&L reports revenue and expenses over a period. Check dates, accounting basis, export date, and close status before reading its totals.

The partial October report

October covers only October 1-6. Wages are blank. First-day billing and later payroll synchronization mean the recorded profit requires completeness checks.

September revenue

Recurring: $106,456.25. Nonrecurring: $44,410.62. Total: $150,866.87. The accounting recurring total still needs comparison with the active contract schedule.

September gross profit

Revenue $150,866.87 minus COGS $106,836.42 gives gross profit $44,030.45. Gross margin is about 29.19% under the supplied classification.

September operating and net income

Gross profit $44,030.45 minus overhead $34,862.24 gives operating income $9,168.21. Other income $261.34 brings net income to $9,429.55.

The August-to-September change

Revenue increased $20,894.53. COGS increased $27,091.77. Gross profit fell $6,197.24. The cost increase exceeded the revenue increase.

The cause investigation

The arithmetic identifies changed categories. Payroll detail, supplier bills, posting dates, and revenue mix establish the causes. Preserve approved classifications during the review.

The monthly commentary

The admin manager prepares comparable figures and supported observations. The CEO chooses investigations and actions. Identify unresolved causes and the person responsible for the next step.

September revenue rose $20,894.53 while COGS rose $27,091.77. What happened to gross profit?

  1. It rose $20,894.53
  2. It fell $6,197.24
  3. It fell $27,091.77
  4. It rose $6,197.24

Which description fits the October 1-6 net income of $109,258.35 with a blank wage row?

  1. Approved October profit available for distribution
  2. A forecast of the full month's final profit
  3. A partial result requiring cost-completeness checks
  4. Evidence that payroll costs have permanently ended

September gross profit is $44,030.45 and overhead is $34,862.24. What is operating income?

  1. $9,168.21
  2. $44,030.45
  3. $34,862.24
  4. $9,429.55

Key terms

Profit and loss statement
A report of revenue and expenses over a stated period, also called an income statement or P&L.
Revenue
The amount earned from providing services or products under the accounting policy used for the report.
Cost of goods sold (COGS)
The report's classification for direct delivery and product costs.
Gross profit
Revenue minus direct delivery and product costs under the company's stated classification.

Three points to remember

  1. Read period and basis before interpreting a result.
  2. Follow revenue through COGS, overhead, and other items.
  3. The report locates changes; source records explain their causes.