Gross profit is of importance for the retailer as it indicates the effectiveness of the organization in allocating the resources efficiently for the process of production (Georgia State University, 2014).‘Operating Expenses’ represent the total expenses incurred by a company to meet the requirements of its daily operations occurred in a fiscal year. Additionally, recording the operating expenses, the P&L statement helps to identify the possible ways of reducing the operating costs to minimum for the better effectiveness of the business. Moreover, parallel to operating expenses, the company has to incur other miscellaneous expenses. Taxes, also included in operating expenses, represent a major determinant of the profit earning potentials of the company and help the retailer to design their tax saving strategies in order to plan for tax deduction and increase the net profit of the company. However, in order to reduce the tax burden, the retailer can pay off certain amount of the accrued taxes on quarterly basis, depending on the record provided through the P&L account (Georgia State University, 2014).The P&L statement is of huge benefit to the retailers as it gives a complete picture of the total revenue earned and a parallel comparison of the total expenses incurred. This also helps the retailer to identify the major expenses that occur during the course of operations and also helps to manage the expenses so as to maximize the profit. Parallel to this, the P&L account also gives a detailed overview of the total expenses and the accrued liabilities emphasizing the direct as well as indirect costs to maintain a complete record of the operations conducted by the business. The retailer can use the information in order to plan for the allowances and expenses for the next fiscal year. The financial statement also helps the retailer to identify the major loopholes to take corrective measures in order to increase the profit to the desired extent within the period of a fiscal year (Elliott & Uphoff, 1972).Besides P&L statement, ‘Balance Sheet’ of every organization represents the standing ledger balances at the end of the fiscal year and complements the managerial significance of the former financial record to a substantial extent. While balance sheet, accompanied with the P&L account delivers this information, the statements are also useful to exhibit where the organization stands financially, at the end of the fiscal year. Furthermore, the
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Saleem, Q. & Rehman, R. U. (2011). Impacts of liquidity ratios on profitability. Interdisciplinary Journal of Research in Business, 1(7), 95-98.
Profit and Loss Statement (Budgeted)
Profit and Loss Statement (Actual)
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