Profit & Loss And Balance Sheet
Profit & Loss
Definition
Profit and Loss Statement (P&L)-also known as the Income Statement-shows the company's revenues, expenses, and profits over a specific period.
It helps assess the company’s financial performance.
Part of the Profit & Loss statement
1. Revenue (Credit):
Represents the total income from operations, such as sales of goods or services.
Example: Total sales x Average Price = Revenue
2. Expenses (Debit):
Represents all costs incurred to generate revenue, such as cost of goods sold (COGS), operating expenses
Example: Salaries, Rent, Utilities, depreciation, and interest expenses.
3. Net Profit or Loss:
If revenues are higher than expenses, the result is Net Profit. Otherwise, it's a Net Loss.
Revenue > Total Cost = Profit
Revenue < Total Cost = Loss
BALANCE SHEET
Definition
SAP Balance Sheet: A financial statement showing a company's assets, liabilities, and equity at a specific point in time, managed through the General Ledger (GL) module in Financial Accounting (FI).
Its purpose is to understand the company's actual financial situation in a year.
PART OF BALANCE SHEET
1. Assets: Company Owns.
Current Assets: Cash or other assets can be liquidated short term.
Example: Cash, Accounts Receivable, Inventory.
Non-Current Assets: Long-term investments and items not expected to be liquidated in the short term
Example: Fixed assets like property, Plant, Equipment.
2. Liabilities: Company Payables.
Current Liabilities: Obligations the company must settle within a year
Example: Accounts payable, Short-term loans.
Non-Current Liabilities: Long-term debts and obligations
Example: Long-term loans, bonds.
3. Equity: Stake in the company.
Includes items like Share Capital, Retained Earnings, and Reserves.
Example of Balance Sheet in SAP
Company purchases a machine Rs.1,50,000 on credit
Debit: Fixed Asset (Asset)- 1,50,000
Credit: Accounts payable (Liability) - 1,50,000
