FINANCIAL ENGINEERING

Financial Statements
KRIPA SHANKER Ph D (Cornell)
FNAE, FIE(I), FITEE(I), LMISTE, LMIIIE, MORSI, MORSA, SMIIE

Visiting Faculty
Department of Mechanical Engineering
Indian Institute of Technology (BHU) Varanasi
Former Emeritus Fellow
Industrial and Management Engineering Department
Indian Institute of Technology Kanpur
Former Vice Chancellor, Uttar Pradesh Technical University Lucknow
Former Deputy Director, Indian Institute of Technology Kanpur 1
Prof Kripa Shanker Mechanical Engineering IIT (BHU) Varanasi
 2
Prof Kripa Shanker Mechanical Engineering IIT (BHU) Varanasi
 Financial Engineering

PROFIT AND LOSS

ACCOUNT

Kripa Shanker IIT Kanpur 3

 Profit and Loss Account
• It is a summary of revenue earned and expenses incurred
which ultimately results in profit or loss of /to the company
• No defined format in law
• Operating revenue = Sales revenue
• Non-operating revenue = Other income (out of sale of
investments, interest, commission and discounts, etc)

• Hence operating profit is a yard stick for operating profit of

the company.
Operating profit = Sales Revenue- Operating Cost
 Profit and Loss Account
Gross Sales
• Gross sales includes excise duty to be charged to the customer,
central sales tax applicable, state sales tax applicable, the discount
to be allowed to distributors/dealers/customers. The gross sales
appears in the P&L account comprises of all the above part from
the basic unit price.
Net Sales
• The sales figure excluding all the factors explained above are the
net sales.
Cost of production
• The cost incurred right from the procurement of raw materials to
the finished good.
Cost of production exclude selling and administrative expenses
and interest cost.
 Profit and Loss Account
• Selling And General Administarative Expenses
• Maintaining office staff for admn & acctg
• marketing effort
• payment of salaries/Tr All to marktg personnel
• All the expenses which are not directly connected to
manufacturing are classifed as selling and/or general expenses
• Cost of goods sold
• Cost of goods sold includes all manufacturing expenses and the
adjustments for opening and closing stock
• Cost of Goods sold = Opening stock + Purchases + Manufacturing
expenses - Closing stock
• Gross Profit is arrived deducting figure of cost of goods sold
from the sales figure
• ie Gross profit = Sales - Cost of goods sold.
 Profit and Loss Account
Operating Profit
is arrived deducting selling, administrative and general expenses,
provision for bad debts, interest and miscellaneous expenses from
the gross profit.
Op Profit = Gr Prof - (Sel & adm exp + Prov bad debt + mis exp )

Profit Before Tax

When other income is added and other expenses are deducted
from the operating profit we get profit before Tax
PBT = Op Profit + oth Inc - oth exp
Net Profit
When provision for taxes is deducted from the Profit Before Tax
we get Net profit
Net Profit = PBT - taxes
 Profit and Loss Account
Non Operating Income/Expenses
The income earned by the unit from other than manufacturing and
selling operations is classified under this head . i.e
a) Interest earned on fixed deposits
b) Dividends and profit earned by sale of assets and share.
All those expenses which are not directly connected with operations
of the unit are classified under this head. i.e
a) Preliminary expenses written off
b) Loss suffered due to sale of assets & share