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Unformatted text preview: ofits as the bottom line of the statement. The Profit and Loss Statement The Income Statement is the same as the Profit and Loss statement. You’ll also find them called “pro forma,” meaning projected, as in “pro forma income” or “pro forma profit and loss.” The pro forma income is the same as a standard income statement, except that the standard statement shows real results from the past, while a pro forma statement is projecting the future. Now that you have projected sales and cost of sales (discussed in Chapter 11: Forecast Your Sales), personnel expenses (Chapter 8: Management Team), and your operating expenses estimates (Chapter 13: Expense Budget) it is time to compare your expenses to your sales. The following illustration shows a simple income statement. This example doesn’t divide operating expenses into categories. The format and math starts with sales at the top. STANDARD PROFIT AND LOSS STATEMENT This is a partial graphic, showing only three months of a 12-month table. HURDLE: THE BOOK 15.2 ON BUSINESS PLANNING First, subtract cost of sales from sales. This gives you gross margin, an important ratio for comparisons and analysis. Acceptable gross margin levels depend on the industry. According to the 2005 Industry Profile Analysis from Integra Information, www.integrainfo.com, an average shoe store has a gross margin of 47 percent. A hat manufacturer has a gross margin of 37 percent, and a grocery store about 18 percent. Then subtract expenses to calculate profits or losses. Costs, COGS, Direct Costs, Gross Margin Although we discussed cost of sales or COGS in Chapter 14: Forecast Your Sales, you should know that it is important to Gross Margin. In standard accounting, the cost of sales or cost of goods sold are subtracted from sales to calculate gross margin. These costs are distinguished from operating expenses. Gross Margin is also called Gross Profit. The division between costs and expenses doesn’t change profits. Some very simple bookkeeping systems ignore the distinction altogether....
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