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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