19 July 2024
Certainly! Here’s a checklist for preparing and reviewing a Profit and Loss (P&L) statement and Trading Account:
### Trading Account Checklist:
1. **Sales Revenue:** - Calculate total sales revenue for the period. - Ensure it includes all sales made during the period.
2. **Cost of Goods Sold (COGS):** - Calculate the direct costs associated with goods sold. - Include costs such as raw materials, direct labor, and direct overheads.
3. **Gross Profit Calculation:** - Subtract COGS from sales revenue to calculate gross profit. - Verify the accuracy of the gross profit figure.
### Profit and Loss (P&L) Statement Checklist:
1. **Revenue:** - Include all sources of revenue earned during the period. - Categorize revenue by type if necessary (e.g., product sales, service revenue).
2. **Cost of Goods Sold (COGS):** - Transfer the COGS figure from the Trading Account. - Ensure consistency between the Trading Account and the P&L statement.
3. **Gross Profit:** - Calculate gross profit by subtracting COGS from total revenue. - Verify the gross profit margin if needed.
4. **Operating Expenses:** - Include all operating expenses incurred during the period. - Categories may include salaries, rent, utilities, marketing, etc.
5. **Operating Profit (EBIT):** - Calculate operating profit by subtracting operating expenses from gross profit. - Ensure all expenses are properly categorized and accounted for.
6. **Non-Operating Income and Expenses:** - Include any non-operating income (e.g., interest income) and expenses (e.g., interest expenses). - Clearly differentiate between operating and non-operating items.
7. **Profit Before Tax (PBT):** - Calculate PBT by adding non-operating income and subtracting non-operating expenses from operating profit.
8. **Taxation:** - Calculate income tax based on applicable tax rates and regulations. - Adjust for any deferred tax assets or liabilities.
9. **Net Profit:** - Calculate net profit by subtracting income tax from PBT. - Verify the final net profit figure.
10. **Earnings per Share (EPS):** - Calculate EPS if applicable (divide net profit attributable to shareholders by the weighted average number of shares outstanding).
11. **Dividends:** - Disclose any dividends declared or proposed during the period.
### Review and Verification:
- **Accuracy Check:** - Verify all calculations and figures for accuracy. - Reconcile any discrepancies between accounts and statements.
- **Comparative Analysis:** - Compare current period figures with previous periods or budgeted amounts. - Identify trends and variances for analysis.
- **Disclosure Requirements:** - Ensure all necessary disclosures are included (e.g., accounting policies, significant estimates).
- **Management Review:** - Obtain review and approval of the P&L statement by management.
- **Audit and Compliance:** - Prepare the P&L statement in compliance with accounting standards and regulatory requirements.
By following this checklist, you can ensure that your Profit and Loss statement and Trading Account are comprehensive, accurate, and ready for internal management use or external reporting requirements.
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