January 16, 2020

Cash based Profit and Loss for Small Businesses

Naveen Shayan

LedgerMax specialist

Small business owners are usually pretty much acquainted with cash based accounting. The cash based profit & loss is equivalent to the cash a business gets from its sales deducting its cash expenditures in an accounting period. A business accounts its expenses, sales and profit or loss (cash based) on its income statement or P&L statement.

However, as a matter of fact, this cash-basis P&L statement does not follow the general accounting rules and thus, is mostly used by only those small businesses that do not involve external parties for reporting.

Sales Proceeds

Sales proceeds adds profit and diminishes loss. The sales income reported by a business on a cash basis P&L statement is only comprised of the cash earned by selling its services or products. So, if a company executes a sale and wishes to acquire the payment at a far along date, it will report the income after collecting the payment only. For instance, if during a quarter, your small business sells Rs.100,000 in products; however, collects Rs.90,000 only from the customers, your business will report Rs.90,000 on your cash based P&L statement.

Cost or Expenses

Cost or expenses lessens profit and adds to the loss. On a P&L statement, the expenses only comprise of the ones for which the business has spend in cash. So, if a business bears an expense; but can pay for it on an advanced date, that expense ��would be deducted from the current declaration. For instance, during a quarter, your small business spends Rs,50,000 in expenses. So, if you pay cash for just Rs.40,000 of expenses and choose to pay the outstanding Rs.10,000 during the subsequent quarter, your business will report Rs.40,000 in expenses throughout the present quarter.

Profit or Loss Declaration

The profit or loss is generally reported by a business at the bottommost of the income statement. The net income or profit is a positive amount and denotes that the cash collected by the business gets an upper hand over the cash expenditures. On the other hand, a loss is a negative amount signifying that the expenses have predominated the cash collections. For instance, if your company has Rs,100,000 in cash collections while Rs.70,000 in expenditures on its P&L statement (cash-basis), this denotes a Rs.30,000 profit.So, categorically, cash-based profit & loss statements are integral part of a small business�۪s accounting cycle. Businesses that use accounting software like LedgerMax for their bookkeeping requirements can automatically obtain their P&L statements without going through any hassle.

LEDGERMAX BLOG

Our Featured Blog Posts

November 3, 2022
The significance of supply change management for a business is massive. It is a vastly comprehensive system that all organizations use in order to put up their products; starting from acquiring raw materials, processing them and finally delivering the end product to the consumer. Thus, an efficient supply chain is all about improving the functionality of operations and making them more well-organized and swift.
Read more
October 4, 2022
There isn’t any business that doesn’t need cash. As a small business owner, you must be aware of the significance of having an adequate amount of rupees in hand. Irrespective of the profits your business is making, if the cash is occupied in any way, be it pending receivables or excessive inventory, the money is worthless. In contrast, when you maintain a strong cash flow for your business, it lets you fulfill your financial duties effortlessly and the resilience it needs to rise with more opportunities. In short, you won’t have to think before saying YES to any new venture that comes in your way.
Read more
September 1, 2022
Also known as a delivery note, a GRN (Goods Received Note) is a significant document which is used by the accounts division to authenticate invoices prior to settling the payments. The accounts department relies on the GRN made by the stores division to scrutinize if all the ordered products are delivered by the supplier and then settle the supplier’s payments for the said goods.
Read more