If the report shows a gross loss as in the example above this means there is not enough money to cover the overheads of the business and that the following could have occurred:-
- The mark up on the sales price is too low
- There are too many discounts being given to customers
- Not all direct costs have been on-charged to the customer as they should have been
A review of the systems in place will be necessary to correct these problems and save the business from financial ruin.
How often to calculate the accounting profit
A profit and loss report | income statement should be prepared regularly during the financial year for the business owner to analyze.
A minimum of once a month is recommended.
If you struggle with this, then outsource your reporting to a bookkeeping expert who can prepare the report and also give you an explanation of what is happening with your business financials.
Note also, these monthly reports won't show expenses such as depreciation of fixed assets (unless you use accounting software such as Xero that allows you to process the deduction every month) but it can be left to be calculated by an accountant at the end of a financial year.
Depreciation is inserted underneath the Net Profit and deducted to show the Taxable Profit.
Here are some alternatives to the various terms used:-
Profit and Loss Report
Cost of Goods Sold (Cost of Sales)