Is your accountant presenting before you Correct Trading and P&L Account or Income & Expenditure Statement?
Monitoring at least the monthly performance of your business in financial terms is very crucial.
for that you need to have correct picture of your Revenue and Expenditure which reflect what you whether you made real profit of loss
Every business owner should design or should be able to extract from their accounting software correct pictures of ultimate result from business in terms of profit or loss made during the month so that corrective actions can be taken in following month
In general practice mid-size or small organizations do not prepare any profit and loss accounts or any MIS to monitor their performance just rely of accounting software which not always provide actual picture and after the end of fiscal year Financial Statement are prepared for the purpose of compliance only that is also after Five to Six months from the end of Financial Year
What general ignored by accountants are following few points need to be kept in mind while preparing profit and loss accounts before management, owners, or investors to give them actual picture;
- Revenue should be presented duly segregate in various revenue streams and should be co-relatable with direct cost of the revenue stream.
- Identify Unbilled Revenue
- Correct Calculation of Cost of Goods Sold (COGS) or service provided, which allow you to monitor month on month contribution by such revenue stream.
- Actual valuation of the stock/closing stock.
- Correctly calculated gross margin and operating margin of the business.
- Provisioning for the expenses for which relates to the period for which statement is being prepared like invoices from vendors not received for that period, utility bills, in this area maximum accountants make mistakes because they record expenses only based on invoices received by them.
- Allocation of pre-paid expenses month by month e.g., Insurance or AMC etc.
- Recording of Finance Cost separately
- Month on month calculation of depreciation and recording separately
- Provision for tax expense
Statement or profit and loss account should be able to address following areas of concern which are very crucial for any businessperson;
- Should reflect segment/product category wise Gross Margine
- Unit or Location wise Gross Margine
- Reflecting Direct & Indirect costs should be and Variable & Fixed costs
- Covering all the expenses for the corresponding revenue is shown in the statement.
- Reflecting Earnings Before Interest Tax and Depreciation (EBITDA) Margine.
- Should be reflecting Cash Profit and Non-Cash Profit.
- Profit after Tax (PAT)
- Month on Month Comparision and Variances must be there
- Comparison budget vs actual numbers should be there
To achieve this level of detailed presentation and insightful statement every business owner needs to work with their finance team and may need to involve any qualified professional who can help you with designing such statement and present month to month.