Answer:

The Profit and Loss Account statement of an enterprise is essential for representing the state of business activities in an organization.

Following are the key components required for the preparation of a P&L Account.

Components:

1) Revenue:

Revenue is the sum of the revenue earned from the operating activities of a business and the other non-operating income earned by a business. For instance, for a manufacturing unit, the operating income can be the sale of finished goods. Non-Operating Income can be interest earned on financial investments.

2) Cost of Goods Sold

The Cost of Goods Sold indicates the total cost incurred in the production of goods and services. It includes costs incurred in the purchase of raw materials, direct labour and production.

Gross Profit is derived from the deduction of the Cost of Goods sold from Total Revenue.

3) Operating Expenses:

Operating Expenses include all the expenses involved in the normal course of operation like rent, salaries, insurance, maintenance etc.

4) Depreciation and Financial Charges

Depreciation is charged as a deduction in the value of fixed assets on the account of wear and tear or obsolescence. Similarly, financial charges like interest on loans are a charge on profits paid to debtors of the company.

5) Tax Rate

To arrive at the Net Profit, first expenses (3) and (4) are deducted from the Gross Profit, post which the applicable tax is deducted.