Form of Presentation—Account Form
As to the form of the profit and loss summary, in the main, two types are met. One is known as the account form because the items of income and expense are set up like credits and debits in an account. The other is known as the statement or report form. This is sometimes referred to as the non-technical method of presentation because the items are set up in running form without regard to a debit or credit terminology, the order of arrangement being dictated by the logic of the ordinary business man. In the case of the account form the sales or main items of income are placed in juxtaposition on the one side with the direct costs of that income on the other side, the balance of the two sides being brought down as the gross profit. Against this are set up the groups of selling and general administrative expenses. The difference between the two sides is again brought down as the figure of net operating profit to which are added other items of income. The charges against that income, i.e., the expenses incurred in financing the business, are then shown. The balance at this stage is the net profit for the fiscal period and opposite this appears its disposition, showing the portion appropriated to dividend purposes, to reserves of various sorts, and finally to surplus of the portion remaining unappropriated to other uses.
Non-Technical or Report Form
When the profit and loss summary is set up in non-technical form, the figure of sales is first shown. Beneath this rather than in juxtaposition as in the other case, the cost of sales is given, which cost deducted from sales gives the figure of gross profit. Below this appear the groups of selling and general administrative expenses, the deduction of which from the gross profit figure gives the figure of net operating profit or, as sometimes stated, the figure of “Net Profit on Sales.” To the net profit on sales are added the other items of income, and from the sum of these are subtracted the expenses of financial management, leaving, as in the other case, the net profit for the period.
Examples of Forms of Presentation
It is impossible and undesirable, as stated above, to lay down any hard and fast form which must be rigidly followed, because a basic principle of all accounting is that it must adapt itself to the needs and requirements of particular conditions. Therefore, only the bare skeleton of a form can be set up with any hope of its being applicable to all conditions. In other words, the form of arrangement and method of showing the statement to be presented at the close of the fiscal period must be flexible, depending upon the use to which the statement is to be put and also depending upon the information which it is desired to set forth.
The skeleton form given below which is suggested by A. Lowes Dickinson[68] follows the general lines laid down in this chapter. It is designed to serve as a framework for all uses.
| Manufacturing and Merchandising: | ||
| Gross Earnings from Sales | $ . . . . . | |
| Less—Returns, Allowances, and Discount | . . . . . | |
| Net Earnings from Sales | $ . . . . . | |
| Deduct—Cost of Production or Service | . . . . . | |
| Gross Profit | $ . . . . . | |
| Deduct—Cost of Selling | $ . . . . . | |
| Expenses of Management | . . . . . | . . . . . |
| Net Profit from Operations | $ . . . . . | |
| Agency and Commission: | ||
| Commissions Earned | $ . . . . . | |
| Deduct—Expenses of Management | $ . . . . . | |
| Cost of Guarantees | . . . . . | . . . . . |
| Net Profit from Operations | $ . . . . . | |
| | ||
| Transportation: | ||
| Earnings from Operations | $ . . . . . | |
| Deduct—Operating Expenses | $ . . . . . | |
| Taxes | . . . . . | . . . . . |
| Net Profit from Operations or Operating Income | $ . . . . . | |
| Banking: | ||
| Earnings from: | ||
| Interest | $ . . . . . | |
| Commissions | . . . . . | |
| Other Profits | . . . . . | $ . . . . . |
| Deduct—Expenses of Operation and Management | . . . . . | |
| Net Profit from Operations | $ . . . . . | |
| Professional: | ||
| Gross Earnings from Fees | $ . . . . . | |
| Less—Out-of-Pocket Expenses included therein | . . . . . | |
| Net Earnings from Fees | $ . . . . . | |
| Deduct—Expenses of Operation and Management | . . . . . | |
| Net Profit from Operations | $ . . . . . | |
(The form for the remainder of the statement will be the same in all cases, viz.:)
| Net Profit from Operations | $ . . . . . | |
| Other Income | . . . . . | . . . . . |
| Deduct—Interest on Bonds | $ . . . . . | |
| Other Fixed Charges | . . . . . | . . . . . |
| Surplus for the year | $ . . . . . | |
| Extraordinary Profits (detailed) | . . . . . | |
| Surplus brought forward from preceding year | . . . . . | |
| $ . . . . . | ||
| Deduct—Extraordinary Charges | . . . . . | |
| Total Surplus available | $ . . . . . | |
| Dividends on Stocks | . . . . . | |
| Surplus carried forward | $ . . . . . | |