Learning Objectives:

At the end of this lesson, the students should be able

to:
1. Differentiate profit from loss;
2. Illustrate how to compute for profit and loss; and
3. Prepare a simple income statement for a trading
firm.
Try This!
 Abigail purchased a suitcase Php 1 200.00. She
paid Php 120.00 for delivery of the suitcase from
the seller to her place. She asked the help of
Bernadette to sell the suitcase. She promised to
give Bernadette Php 150.00 if Bernadette could
sell the suitcase for Php 2 000.00. Bernadette was
able to sell the suitcase for Php 1 900.00 to which
Abigail agreed. How much profit did Abigail get?
Profit or Loss
Profit Cost
 Is what remains of the  Means the cost of the
selling price (sales)after product sold or service
all cost and all expenses rendered.
had been deducted.
Expenses
Loss  It refers to operating
 It occurs when the cost expenses (administrative
and expenses exceed the and selling expenses) and
selling price or sales. financial expenses (interest
& other finance charges)
 Profit or Loss
Profit or Loss = Revenue - Cost
Note: The result is a Profit if it is
positive and Loss if it is negative
 Example 1:
 You bought a bag for Php 800.00. You spent Php 50.00
for transportation in going to the store to buy it. For
the following independent cases, determine whether
you earn a profit or incurred a loss. Determine how
much your profit or loss was.
a) You sold the bag to your friend for Php 1 000.00
b) You sold the bag to your friend for Php 700.00
 Example 1:
 Given:
Cost of Sales: P800 Net Profit:
Transportation Expense: P50 Net Loss:
Sales: P1000
Expenses = 800 + 50
= 850
P/L = Revenue - Cost
= 1000 - 850
Profit = P150
 Example 1:
 Given:
Cost of Sales: P800 Net Profit:
Transportation Expense: P50 Net Loss:
Sales: P700
Expenses = 800 + 50
= 850
P/L = Revenue - Cost
= 700 - 850
Loss = -150
 Example 1:
 Given:
Cost: 850 Net Profit:
Sales: P1000 Net Loss:
Profit % = x 100
Profit % = x 100
Profit % = 0.17647 x 100
Profit % = 17.65%
 Formula for Selling Price
 If there is a profit, the formula is
Selling Price = Cost x (1 + % profit)
 If there is a loss, the formula is
Selling Price = Cost x (1 - % profit)
 Example 2:
 A dealer bought a car for P720, 000. How much must
he resell the car to be assured of a 20% profit?
 Given:
Cost: P720, 000 Selling Price:____________
Profit %: 20%

Selling Price = Cost x (1 + % profit)

= 720 000 x (1 + 0.20)
= 720 000 x (1.20)
= 864, 000
 Income Statement for a Trading Firm.
 The account used to report the selling price of the
merchandise is sales.
 Gross sales refers to the total sales.
 Sales discounts and sales returns and allowances
are deducted from the gross sales to arrive at the
net sales.
 How much the seller buys the item is the cost of
the item. It is termed cost of goods sold or cost of
sales.
 Income Statement for a Trading Firm.
INCOME STATEMENT
 Is the financial statement that shows the results of
operation, that is, if it earns a profit or incurs a
loss for a given period of time.
 Matatag Merchandising
Income Statement
For the Year Ended June 30, 201B
Sales Php 117 000
Less: Cost of Sales Php 59 000
Gross Profit Php 58 000
Less: Operating Expenses
Communication Expense Php 1 000
Delivery Expense Php 5 000
Rent Expense Php 5 500
Salary Expenses Php 8 300
Bad Debts Expense Php 600
Office Supplies Expense Php 700
Store Supplies Expense Php 1 500
Furniture Expense Php 1 000 Php 23 600
Operating Profit Php 34 400
 Matatag Merchandising
Income Statement
For the Year Ended June 30, 201B
Operating Profit Php 34 400
Add: Other income
interest Income Php 800
Commision Income Php 1 500 Php 2 300
Less: Other expense
Interest expense Php 1 200
NET PROFIT Php 35 500
Cost of Sales Other Expense
 Is the purchased price and  Includes interest expense
other expenses incurred or finance charges
in buying the product Operating Profit/Loss
Other Income  Is gross profit less
 includes interest income operating expenses.
and other incidental
income the firm earns Net Profit/Loss
Operating Expenses  Is operating profit plus
 are expenses incurred to other income less other
run the business expense.
Let’s Apply: Check your understanding!
1. You were given the following data for the Summit
Marketing Co. as of January 31,201A:
 Sales P127 500
 Purchase (merchandise) 57 000
 Frieght-in 5 000
 Taxes and Licenses 900
 Communication Expense 300
 Heat, Light, and Water 1 240
 Store Supplies Expense 1 180
 Office Supplies Expense 730
 Miscellaneous Expense 2 090
Let’s Apply: Check your understanding!
a) How much is the cost of sales? What percent is it of
the sales?
b) How much is the operating profit? What percent is it of
sales?
c) How much is the net profit? What percent is it of
sales?
d) Prepare an income statement on a separate sheet.
Let’s Apply: Check your understanding!
a) How much is the cost of sales? What percent is it of the
sales?

Cost of Sales = purchase + frieght-in

= P57,000 + P5,000
= P62, 000

x 100 = x 100 = 48.63%

Let’s Apply: Check your understanding!
b) How much is the operating profit? What percent is it of
sales?
Gross Profit P65,500
Taxes and Licenses 900
Communication Expense 300
Heat, Light, and Water 1 240
Store Supplies Expense 1 180
Office Supplies Expense 730
Miscellaneous Expense 2 090 6,440
Operating Profit P59,060
Let’s Apply: Check your understanding!
c) How much is the net profit? What percent is it of sales?
Operating Profit P59,060
Interest Income P2 000
Interest Expense (P1 200) 800
Net Profit P59,860
ASSIGNMENT:
d) Prepare an income statement on a separate sheet.
Let’s Apply: Check your understanding!
a) How much is the cost of sales? What percent is it of the
sales?
b) What is the margin or gross profit? How much is the amount
in peso? How much is the gross profit rate?
c) What is the markup based on cost?
d) How much is the operating profit? What percent is it of
sales?
e) How much is the net profit? What percent is it of sales?
f) Prepare an income statement on a separate sheet.
Let’s Apply: Check your understanding!
b) What is the margin or gross profit? How much is the amount
in peso? How much is the gross profit rate?

Gross Profit = =
=
=
= 51.37%
Let’s Apply: Check your understanding!
c) What is the markup based on cost?

=
=
= 105.65%