All about Profit & Loss account for Startups in Guwahati, Assam – Types, Components, Format, Benefits, Compliances

If you’re an entrepreneur looking to start a business in Guwahati, Assam of your own or to seek finances for your venture, you may probably be worried about the accounting& book-keeping involved in the process. However, it is not as hard as you might feel. You will be needed to familiarize yourself with certain important concepts, and one item you will need to familiarize yourself with is a profit and loss (or P & L) statement.

Among the variety of financial statements and accounting records, the profit and loss statement is often the most overlooked one despite its vital significance. It is one of the key statements that records and summarizes the position of revenues & expenses incurred by a business in a given period. It shows the overall profitability of your business for the specific period over a period (monthly, quarterly, and yearly), however, should be preferred to be prepared at least every quarter and annually.

Regardless of the size of the business, a P & L statement states the expenses that have emerged during the period and the gains earned by the start-up business. Typically, a P & L statement reports information related to-

• Revenues for the accounting period (monthly, quarterly, or yearly)
• Expenses incurred by the business to generate profits
• Taxes paid and depreciation
• Earnings per share number

Therefore, a profit & loss statement goes by various names such as-

• Income statement,
• Income and expense statement,
• Statement of financial results
• Statement of Operations, and
• Statement of Earnings.

Regardless of the level of operations or profitability of a business, every start-up must keep a track of all its financial progress by reviewing and reflecting on the profit and loss statements prepared and presented to the internal management from time to time, which will allow them to determine whether the business is profitable and growing, or it’s running on losses and needs some corrective actions.

It is important to understand that, only a great idea and an endless drive do not make a start-up successful, especially where start-up entrepreneurs tend to ignore the mundane accounting tasks. These statements should be among the first files to be generated along with a budget and a costs worksheet. While some P&L statements are simpler and easier to understand, others may get extremely complex.

All about Profit & Loss account for Startups in Assam

Assam is a northeastern state of India situated in the south of the eastern Himalayas and the Barak and Brahmaputra Rivers. The state’s official language is Assamese and Bodo, and Assam is particularly famous for tea and Assam Silk. The state is the home to one-horned Indian Rhinoceros, Asian elephants, tigers, and various wildlife animals and Asiatic birds. The Kaziranga National Park and Manas National Park are also located in Assam, and both the national parks boost the state’s economy through wildlife tourism.

Capital- Dispur

Assam is the highest tea producer in India and produces more than half of the country’s tea. The state’s economy primarily depends on agriculture and oil. The Assam Arakshan Basin has a quarter of the country’s total oil reserves and produces 12% of the country’s petroleum. Besides all this, Assam is also rich in natural resources.
Despite its petroleum reserves, high tea supply, and rich natural resources, Assam’s growth rate cannot keep pace with the country’s growth rate. From 1981 to 2000, the growth rate of the Indian economy was 6% per annum, but the growth rate of Assam was noted to be 3.3%. Even during the sixth plan period Assam reported a negative growth of 3.78%. The economy of Assam is showing signs of improvement, especially in the manufacturing sector. Over the past five decades, the tertiary sector of Assam has constantly been improving and recorded the highest growth rates.
The employment rate of the Assam is relatively low, making unemployment a significant issue of concern for the Assam government. The reason associated with unemployment can be poor education system and overpopulation. Though the state has oil reserves and rich natural resources still, the unemployment rate of Assam is relatively high. Two factors are working behind that. First, the oil reserves hire highly qualified workers outside of Assam; besides this, the local people of Assam have employment threats from the illegal migrants of Bangladesh who compete with the local population by offering to work at lower wages.
Agriculture is the only sector that records growth and is the highest contributor to the economy of Assam. The state is famous around the globe for its tea. Though the state records growth in agriculture, the methods used for agriculture in Assam are primitive, and the modernization in Assam agriculture is yet to be realized. Floods are another major threat to Assam agriculture as the state is located in a flood-prone area. Every year the families of Assam farmers have to suffer due to the overflowing of rivers resulting in floods. Besides agriculture, hand-looming and handicraft of Assam are famous in the country.

Business ideas in Assam
The Government of Assam is taking initiatives and making schemes to encourage the people to startups. The state government is very determined to make the policies to develop a good startup ecosystem. Currently, doing business in Assam is relatively easy compared to other states in the country. Many sectors in Assam have shown signs of improvement; some of them are – petrochemicals, tea production, handloom industry, personal care products, food processing, and many more. Following are the best business ideas in Assam: –

Tea production
Tea is the beloved drink of India, and Assam being the highest tea producer, increases the chances of a successful tea business. The state already produces 51% of the total tea in the country, so setting up a tea plantation or selling packaged tea, flavored tea, etc., can be a good startup idea in Assam.

Handloom
It is the oldest industry in Assam, due to which the state has a rich art of handloom, and people around the country love the Assamese handlooms. Even the foreign nationals who visit India want to possess Assamese handloom. Hence, the demand for Assamese handloom is relatively high, which indicates that it will be a profit-yielding business in Assam.

Fish farming
The state government of Assam is trying to promote fish farming for economic purposes. For that, the state government has created a fisheries department to promote the idea of commercial fish production in almost all water bodies. The fish industry in the state is growing at a fast pace, which means that fish farming in Assam is undoubtedly a good idea for making profits.

Agarwood
Assam is naturally perfect for growing raw material required for agarbatti or joss stick. The agarwood made in Assam is demanded and supplied all around the globe, and one can open a store and sell agarwood products in Assam.

Tourism
Assam has nature’s beauty, and that’s why tourism is among the flourishing sectors in Assam. Undoubtedly there are many unexplored tourist spots in Assam which means that the tourism business is ever-expanding. Tourism-related businesses like transport services, tourist guide facilities, restaurants, hotels, etc., will surely be very profitable in the state.

Coaching institutes
The quality of education is very poor in Assam; that’s why the state’s unemployment rate is so high. Assamese want to develop their state by taking part in administration, but because of poor quality education, they didn’t get successful in it. So, setting up coaching institutes that provide good quality education for different competitive exams will be a great business idea.

Healthcare
Assam is close to nature and perfect for the startup of Ayurvedic healthcare products. Over the past few years, Assam has developed successful entrepreneurs like Dr. Rakesh Das and Ghanshyam Das Dhanuka in healthcare and pharmaceuticals. One can open the startup of ayurvedic and organic healthcare products in Assam. Though this is an unconventional business idea, it will make huge profits.

Startup Ecosystem in Assam
Though the startup ecosystem has not fully developed in Assam, the state government is working on building a prosperous startup ecosystem in Assam. In ”Startup India Awards 2020,” Assam has been recognized as an emerging startup ecosystem in the country. The Government is formulating different schemes and policies to build a supportive startup ecosystem in Assam and motivate youth to take up entrepreneurship as their career.

Balance Sheet vs. Profit And Loss Statement in Guwahati, Assam

Types of Profit and Loss (P&L) Statements in Guwahati, Assam

There are two methods of preparing a Profit & Loss Statement in Guwahati, Assam -cash and the accrual method. Each of whom has been described below-

I. Cash Method– The cash method, which is also known as the cash accounting method, is used in cases where only cash goes in and out of the business and only accounts for cash received or paid. A business using the cash method records transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities. This method is simple to use and usually relevant for smaller businesses.

II. Accrual Method– The accrual accounting method is commonly used by start-ups and other businesses where payments made or received are not limited to cash payments only. This means that a start-up using the accrual method accounts for money that it assumes to be received in the future. For instance, a company that has delivered any product to its customer may record the transaction under revenue head but may not have received payment in actuality. Similarly, liabilities are accounted for even when the business has not paid for any expenses yet.

How to create a profit and loss statement for your start-up in Guwahati, Assam?

The choice of preparing profit & loss statements is entirely dependent on the concerned start-up business and their choice. While some businesses might choose to prepare and review profit and loss statements monthly, others decide to do it quarterly and yearly. Provided below is the step-by-step process of creating a profit and loss statement for your business-

i. Calculation of Revenue in Guwahati, Assam

In the first step towards the creation of a profit & loss statement, you will be required to calculate the total revenues received by the business during the year. For which, you can receive current account balances from the general business ledger such as cash and current accounts receivable balances. Be sure to include account receivables whether or not you have collected that revenue or not for that period (month) and similarly if you wish to prepare P&L for a quarter, add up the revenues for those three months.

ii. Calculate the Cost Of Goods Sold(COGS) in Guwahati, Assam

The cost of goods sold forms a crucial part of any statement of profits & losses. It includes all the costs required to be incurred for producing any product. For instance, if a start-up offers fancy bags, you need to include the cost of material & supplies required to manufacture them. Similarly, if your start-up offers salon services, you will be required to include the cost of your time or your employee’s time that provided the service.

iii. Deduct COGS expenses from Revenue in Guwahati, Assam

Now, once you have calculated revenues and COGS, you will need to deduct all expenditures of COGS to determine the gross profits of your business. Gross profits represent the profits earned by your business from the sale of your products or services. However, if the revenues are lesser than COGS, it means the revenues are insufficient to meet COGS expenses, and the business is running through losses.

Gross Profit/Loss= Revenues- Cost of Goods Sold (COGS)

iv. Calculate operating expenses in Guwahati, Assam

The next thing required to be calculated is operating expenses. Such expenses include expenses like rent, travel, payroll, equipment, utilities, postage, etc.

v. Deduct operating expenses from gross profit in Guwahati, Assam

Once you find out the value of operating expenses, now you may want to find out the value of total operating profit/loss after deducting operating expenses from the value of gross profit.

Operating Profit/Loss= Gross Profit – Operating Expenses

vi. Add additional incomes in Guwahati, Assam, if any

If your start-up has gained any additional includes which have not been included in the value of revenues before, such as interest received on income or dividends received, etc. add them to the operating profit.

By doing so, you will reach the total Earnings before Interest, Taxes, Depreciation, And Amortization, or EBITDA.

EBITDA = Operating Profit + (Interest Income + Dividends Earned)

vii. Calculate interest, taxes, depreciation, and amortization in Guwahati, Assam

Next, calculated any applicable payments such as interest to be paid, taxes due, and depreciation and amortization expenses.

viii. Subtract calculated expenses from EBIDTA in Guwahati, Assam

In the final step, deduct expenses calculated above (interest, taxes, depreciation, and amortization expenses), where applicable and you will arrive at your net profit.

EBIDTA – (Interest + Taxes + Depreciation) expenses = Net Profit/Loss

What are the components of the P & L statement in Guwahati, Assam?

Typically, a P&L statement comprises two main parts, namely-the income earned during the period of the statement and the expenses incurred during the period. These two parts of the statement are broken down into a series of entries as per the relevance of a business, some of them have been explained below-

i. Revenues or Profits in Guwahati, Assam

The first component required to be reported through a profit& Loss statement includes- revenues and it includes all items of income for a business. It includes entries like sales, gross receipts, fees, or any other term used to describe the operating revenue of a start-up. Usually, operating revenue is broken out of non-operating expenses like interest incomes or dividends, etc. Again, the accounting method adopted by the start-up may affect the revenues recorded on P &L during the period. Under the cash method of accounting, revenues could be reported only when cash has been received, while under the accrual method of accounting revenue may only be reported at the time of sale itself. However, to ensure accuracy of the P&L, businesses might adjust gross sales on the experience of customer returns or refund requests by establishing an allowance and getting it against revenues.

ii. Cost of goods sold (COGS) in Guwahati, Assam

Every start-up must find out the value of COGS and figure out ways to keep them minimum for higher profits. COGS or cost of goods sold is the cost of inventory or materials required to manufacture a product, which is then subtracted from the sales to find out the actual revenue (gross profit) from the sales. For example, a company incurs Rs.20 as the cost of inventory and sells it for Rs. 100 would get Rs.100 in revenue, however after taking the Rs. 20 of COGS into account, he would report Rs.80 in gross profit.

iii. Expenses for a business in Guwahati, Assam

All those expenses incurred to operate a business form expenses part of a profit& loss statement. These expenses could include-

1. Advertisement & promotional costs
2. Employee salaries and benefits
3. Interest expenses
4. Office supplies & stationery
5. Payments to vendors/contractors/suppliers, etc.
6. Professional fees for accountants, attorneys, auditors, etc.

Accounting for certain expenses requires an understanding of the terms such as depreciation or amortization of assets of the start-up. For instance, assets such as office equipment must be capitalized as an asset and written off over the useful life of the item. For example, if it the worth Rs.1000 it would be reported over five years.

Each year the profit and loss statement reflects 20 percent on the cost of the computer or Rs.200 as expenses. Non-operating expenses, such as interest and taxes, need to be broken out separately from operating expenses for illustration.

iv. Gross profit in Guwahati, Assam

The Gross Profit (GP) of a business is the value obtained after deduction of the cost of goods sold and sales returns (if any) from total sales revenue. It is located on the statement of profit and loss) prepared by a company and used to determine the percentage of the gross profit margin of an entity.  Likewise, if the start-up is engaged in services without inventory, then the value of gross profit and the gross receipts will be equal.

v. Net profit or loss in Guwahati, Assam

After the calculation of taxes due and subtracting them from any pre-tax income, the remaining amount will equal either the profits/losses of a start-up for the relevant period. When trying to compare businesses in different industries and tax structures, or where the exact numbers aren’t yet available, the value of net profits/losses will be equal to the earnings before interest, taxes, depreciation, and amortization.

Format of P & L in Guwahati, Assam

In India, there are two formats for P&L statements in Guwahati, Assam-

• The horizontal format of the P&L Account
• The vertical format of the P&L Account

The profit & loss statement of the legal entities like a company has to be prepared in accordance with the provisions of Schedule III of the Companies Act, 2013. For the complete format please click –https://www.mca.gov.in/Ministry/pdf/NotificationScheduleIII_12102018.pdf.

What are the benefits of preparing a P&L statement in Guwahati, Assam?

i. Understanding the financial health of your Organization-The primary purpose of a P&L statement is to offer a clear position of the overall financial position of a start-up. It also helps a company’s management to understand the business’s net income, study expenses, and take corrective actions to reduce losses. For example, an entrepreneur may want to know whether his business has enough profits to cover the cost of a new project or if he needs to borrow funds for the same.

ii. Informed Decision Making-A P&L could help the entrepreneurs and business owners to make critical business decisions such as whether they should make large purchases in the immediate future or put such purchases on hold until the start-up reaches a better financial position. Additionally, it can help them to track the efficiency of start-up and performance in the market against its competitors, and growth of the start-up in both the short- and long-term. Further, to represent the value of the business to investors, creditors and shareholders, tech start-ups demonstrate success through their business model, such as “acquisition of key customers, the introduction of unique products & services, technological innovations, marketing, and distribution associations, new subscriber counts, revenue per subscriber numbers, and geographical distribution of customers.

iii. Raising Finances or Seeking Loans– Similarly, when a start-up wishes to raise funds and seek investors for the purpose or where a business owner intends to sell his business, any interested party would want to know the profitability or growth prospects for a business, for which they may seek P&Ls for several years.

Similarly, when a business makes an application for a loan to any bank or financial institution, they will evaluate your net income and operating income against the expenses, debts, and taxes to ensure the viability and worth of offering financial assistance. If the net business earnings are on an upscale mode, there are chances of you getting higher funds from banks or better deals from investors.

iv. Planning & Forecasting–Another benefit of using a Profit & Loss statement is for planning and forecasting By applying your business plan to generate a predictive P&L report, add the expected revenue and expenses to compute the net earnings. If your findings are lower than expected, you can make changes in the business strategies. Similarly, the P&L so created could be used to strike a comparison with the forecasted and actual P&L.

v. Fulfill Compliances & File Taxes-If you regularly record and update your P&L statements along with the other financial statements, you will get all the information required to sort out the information to sort out your business taxes. Further, each year every company is required to file a copy of financial statements to the ROC which includes profit & loss statements within 30 days from the date of holding AGM. Therefore, recording, preparing, and updating P&L statements helps a start-up to manage accounts-related as well as tax compliances easily.

Compliances related to P & L statement in Guwahati, Assam

As provided above, it shall be compulsory for every business to file a copy of financial statements (along with profit & loss statement for the year) in e-form AOC-4 for every financial year with the Registrar of Companies within 30 days of its Annual General Meeting.

However, where the company fails to file a copy of AOC-4 within the due date, the company shall be liable to a penalty of at least ten thousand rupees and in case of continuing failure, a further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees.

Further, every key officer of the company (i.e. managing director, Chief Financial Officer of the company) or in the absence of the managing director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of complying with the provisions of this section, and, in the absence of any such director, all the Directors of the company, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.

Now, every company has also been put under an additional obligation to submit a copy of profit & loss accounts in standard e-form 23ACA. Along with such a form, the company will be required to submit a copy of the audited P & L statement. Further, such form has to be digitally signed by a practicing CA or CMA, or CS, certifying that the information entered in 23ACA is correct and a copy of audited P&L has been provided along with the form.

Therefore, a statement of profits & losses is one of the key financial statements that indicate the performance of an entity for a given period in a nutshell and shows the number of costs borne by the entity to earn the stated revenue over that period. It is the most sought-after statement that the higher management reflects to formulate strategies and evaluate past business performances. Further, a P&L statement supports various analyses such as ratio analysis, financial analysis, costing decisions, pricing decisions, budget controls, etc., which are then prepared out of these statements. When viewed in conjunction with other statements such as balance sheet and cash flow statement, it gives insights into the profitability of any entity.

However, to achieve proper control over the finances of your start-up in Guwahati, Assam, it is necessary to maintain and your P&L periodically and help your business to run on its path to profitability & success.