Statement Of Financial Performance
This lesson introduces the Statement of Financial Performance for a sole proprietor. Students will learn the purpose and format of the statement, how to calculate gross profit and profit for the year, and how revenues and expenses are recorded to determine the business’s financial results for an accounting period.
Related Lessons:
Gross Profit and Profit for the Year
To prepare the statement of financial performance for a trading business, we are required to calculate the followings:
Gross profit
This is profit earned through the buying and reselling of goods.
Sales revenue – sales returns = net sales revenue
Net sales revenue – cost of sales = gross profit or loss
Net sales revenue > Cost of sales = gross profit
Net sales revenue < Cost of sales = gross loss
Profit for the year
This is the amount earned after adding other income to the gross profit and deducting all business expenses for the accounting period.
Gross profit + Other income – Expenses = profit or loss for the year
Gross profit + Other income > Expenses = profit for the year
Gross profit + Other income < Expenses = loss for the year
Preparing A Statement of Financial Performance
Steps to preparing a trading business statement of financial performance of a sole proprietor:
We start by stating the business name and the date that this statement represents in the header. The date will include the day, month and year.
Next, we prepare the first section of the statement to calculate the gross profit or loss, as follows:
Sales revenue XX
Less Sales return XX
Net sales revenue XXX
Less Cost of sales XX
Gross profit or loss XXX
In the second section, we list down all other incomes earned by the business.
Examples of other income: discount received, commission received, interest received
In the third and final section, we list down all the expenses incurred by the business.
Examples of expenses: discount allowed, rent expense, utilities expense, interest expense, stationery expense, wages & salaries expenses
With the above information, we can calculate our profit or loss for the year.