Lesson: PROFIT AND LOSS

Learning Objectives:

At the end of the lesson, the students should be able to:

1. Differentiate profit from loss;

2. Illustrates how to compute for profit and loss;
3. Prepare a simple income statement for a trading
firm;
4. Define break-even point; and
5. Compute for break-even point.
 What is Profit?

- Is what remains of the selling price

(sales) after all costs and expenses
had been deducted.
 What is Loss?

- Occurs when the cost and expenses

exceed selling price or sales.
 Example of Income Statement of a
Trading Firm
Matatag Merchandising
Income Statement
For the Year Ended June 30, 2017

Sales PhP117,000.00
Less: Cost of Sales 59,000.00
Gross Profit: PhP58,000.00
Less: Operating Expenses
Communication Expense PhP1,000.00
Delivery Expense 5,000.00
Rent Expense 5,500.00
Salary Expense 8,300.00
Bad Debts Expense 600.00
Office Supplies Expense 700.00
Store Supplies Expense 1,500.00
Depreciation Expense 1,000.00 23,600.00
Operating Profit: 34,400.00
 Continuation…
Operating Profit: 34,400.00
Add: Other Income
Interest Income 800.00
Commission Income 1,500.00 2,300.00
Less: Other Expense
Interest Expense 1,200.00 1,200.00
NET PROFIT: PhP35,500.00
Income Statement- is the financial statement
that shows the results of operation, that is, if a
business earns a profit or incurs a loss.
Gross Sales- refer to the total sales
Gross Profit- at times referred to as gross
margin.
Cost of Sales- is the purchase price and other
expenses (freight-in) incurred in buying the
products.
Operating Expenses- are expenses incurred to
run the business.
Other Income- includes interest income and
other incidental income the firm earns.
Other expense- includes interest expense or
finance charges which financial institutions
charge firms for its services.
Operating Profit/Loss- is gross profit less
operating expenses.
Net profit/loss- is operating profit plus other
income less other expense.
 What is Break-even Point?

-is the point where a business neither

makes profit or nor loss.

-total revenue is equals to its total cost

 What is Break-even Point?

To determine the number of units to be

sold to break-even, we can assume
that:
Sales= Variable Costs + Fixed Costs (1)
If we let x represent the number of units to break-even,
we can use the following formula adopted from the above
formula (1):

Px = vx + FC

Where: P is the unit price;

x is the number of unit
v is the variable cost per unit; and
FC is total fixed cost
To solve for x:

Px- vx = FC

x (P-v) =FC

x= FC
(P-v)
Therefore, the break-even point in number of units would
be:

x= FC
(P-v)
Therefore, the break-even point in number of units would
be:

x= FC
(P-v)
The break-even point in pesos would be:

BEP in Pesos = Unit Price x BEP in units

Example:
Calculate the break-even point in sales units and sales
pesos from the following information:

Unit Price - P20.00

Variable Cost- P8.00
Fixed Cost- P12,000.00

Solution:
BEP in Units (x) = P12,000.00 = P12,000.00 = 1, 000 units
P20.00- P8.00 P12.00
BEP in Pesos = P20.00 x 1,000 units = P20,000.00
 Answer this!
ABC trading firm purchased a lot for merchandise that costs PhP100,000.00
for which it paid PhP10,000.00 for transportation. The firm sold the entire
lot for PhP180,000.00. The firm incurred the following operating expenses:

Rent PhP3,000.00
Advertising PhP15,000.00
Store Supplies PhP7,000.00
Office Supplies PhP4,000.00
Utilities Expense PhP9,000.00
Miscellaneous Expense PhP5,000.00

The firm borrowed money from the bank for which it paid PhP6,000.00 in
interest. Prepare the income statement for the firm for the year ended
December 31, 2016.
 Answer this!
1. Find the break-even point in units and in peso given that the
unit price of a certain commodity is PhP15.00; variable cost is
PhP5.00; and total fixed cost is PhP12,000.00

2. A company’s variable cost per unit is PhP7.00 and total fixed

cost at PhP9,000.00. If the company sold a total of 10,000
units yielding a total sales of PhP150,000.00, find the BEP in
pesos.