Profit and Loss Account is one of the elements of the financial statement and constitutes a summary of revenues and the related costs, as well as the financial results from the entire activity of the economic entity in a given reporting period.

In the profit and loss account, the presented revenues and costs are grouped according to the type of activity to which they relate: operating activity (core and other) and financial activity.

Core operating activity constitutes the main business activity of a given enterprise and may include production, trading, or service activities. Here, revenues from the sale of products (i.e., goods, works, and services), materials, and merchandise, as well as operating costs, are taken into account.

Other operating activity is indirectly related to the main activity (it may include, for example, social activities, sale of unnecessary fixed assets, giving and receiving donations). Revenues and costs related to this type of activity are called, respectively, other operating revenues and other operating costs.

Financial activity, which is associated with the generation of financial revenues and costs, concerns taking out loans and credits, granting loans, receiving dividends from owned shares and stocks, conducting securities transactions, and maintaining funds in bank deposits.

The purpose of preparing the profit and loss account is to determine the final financial result from the entire activity, which is the net profit or loss. This final financial result is determined in a segmented manner (see Fig. 1). First—by comparing net revenues from sales of products, materials, and goods with operating costs—the result from sales is determined. After adding to the sales result the other operating revenues and subtracting from it the other operating costs, the operating activity result is obtained. This result, increased by financial revenues and decreased by financial costs, ultimately forms the gross profit or loss. Then, after taking into account income tax and other obligatory charges on the gross financial result, the net profit (loss) is obtained.

Figure 1: Determining the net financial result in the profit and loss account

The profit and loss account can be prepared in the comparative variant or the calculation variant. The choice of one of them belongs to the management of the economic entity. The templates of the profit and loss account in the comparative and calculation variants are provided in Annex No. 1 to the Accounting Act [1] (see tab. (1)).

The comparative and calculation variants differ in the way of recognizing costs from the core operating activity (see the upper and lower part of tab. (1)). In the comparative variant, costs are itemized according to their type (e.g., depreciation, wages), whereas in the calculation variant—according to the place of cost origin (e.g., cost of production of sold products, selling costs). When calculating the result from sales, in both variants we will of course obtain the same amount.

Table 1: Profit and Loss Account of the Enterprise


Calculation Variant	Comparative Variant

A. Net revenues from sales of products, goods, and materials	A. Net revenues from sales and equivalent revenues
I. Net revenues from sales of products	I. Net revenues from sales of products
II. Net revenues from sales of goods and materials	II. Change in products inventory (increase – positive value, decrease – negative value)
B. Costs of sold products, goods, and materials	III. Cost of products produced for own needs
I. Cost of production of sold products	IV. Net revenues from sales of goods and materials
II. Value of sold goods and materials	B. Operating activity costs
C. Gross profit (loss) from sales (A–B)	I. Depreciation
D. Selling costs	II. Consumption of materials and energy
E. General management costs	III. External services
F. Profit (loss) from sales (C–D–E)	IV. Taxes and charges
	V. Wages
	VI. Social security and other benefits
	VII. Other type costs
	VIII. Value of sold goods and materials
	C. Profit (loss) from sales (A–B)

G. Other operating revenues	D. Other operating revenues
I. Profit from disposal of non-financial fixed assets	I. Profit from disposal of non-financial fixed assets
II. Grants	II. Grants
III. Revaluation of non-financial assets	III. Revaluation of non-financial assets
IV. Other operating revenues	IV. Other operating revenues
H. Other operating costs	E. Other operating costs
I. Loss from disposal of non-financial fixed assets	I. Loss from disposal of non-financial fixed assets
II. Revaluation of non-financial assets	II. Revaluation of non-financial assets
III. Other operating costs	III. Other operating costs
I. Profit (loss) from operating activities (F+G–H)	F. Profit (loss) from operating activities (C+D–E)
J. Financial revenues	G. Financial revenues
I. Dividends and shares in profits	I. Dividends and shares in profits
II. Interest	II. Interest
III. Profit from disposal of financial assets	III. Profit from disposal of financial assets
IV. Revaluation of financial assets	IV. Revaluation of financial assets
V. Others	V. Others
K. Financial costs	H. Financial costs
I. Interest	I. Interest
II. Loss from disposal of financial assets	II. Loss from disposal of financial assets
III. Revaluation of financial assets	III. Revaluation of financial assets
IV. Others	IV. Others
L. Gross profit (loss) (I+J–K)	I. Gross profit (loss) (F+G–H)
M. Income tax	J. Income tax
N. Other obligatory decreases in profit (increases in loss)	K. Other obligatory decreases in profit (increases in loss)
O. Net profit (loss) (L–M–N)	L. Net profit (loss) (I–J–K)

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