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The simple profit and loss statement and how to use it a profit and loss statement is a tool used widely in businesses to establish how the business is doing any business sells certain products any business incur certain costs the profit and loss statement simply tells you whether your business is profitable that is whether it is making a profit or whether your business is making a loss it is important to understand this tool because this tool can definitely help you in rectifying whatever errors there might be in your business or it can at least warn you about where your business is headed this tool is used by businesses of varying scales and meeting sizes the profit and loss statement is a mandatory requirement by the governments of various countries and is used to file for taxes at the end of the year the simple profit and loss statement can a snapshot of how a business is doing it is divided into various parts the first part is the revenue for the money that your company is making by way of selling products if you have one product or five products you are selling and therefore the sales number will be reflected accordingly your company might make other income let's say you have made a profit in one year and you've invested this profit in some government security that government security gives you 7 or 8 percent Interest that is income for you that is income for your company and therefore that income reflected in other income Salop share the total revenue of a company for a month which could be January February or March is a total sales the company has made in that period and any other money that has come into the company for that particular time period since you're selling something we're also entering a cost there are two types of costs a direct cost and the office expenses or the indirect just the direct cost is simply the cost of the product the cost of the product is the price at which you are buying this product from your supplier into the number of products that you're picking up from that supplier therefore let's say you sell apples you sell apples at five rupees to various customers however your supplier is mr. a you purchase apples from mr. Caid add three rupees per Apple three rupees is a cost of your product if you purchase a hundred apples from mr. a at three rupees your cost is 300 rupees therefore direct cost is only the cost of purchasing the product from your supply office expenses if you recall the cost of selling em of his expenses sheet we had kept an entire section which was for the expenses incurred to run the business these are just the same expenses so you didn't curve expenses in advertising marketing maintenance of your vehicle office rent travel expenses and other such heads these are office expenses or indirect expenses and the total of these will be the total total indirect cost there's something called the gross profit and the operating profit the gross profit is simply the money that you make after you subtract...