All about Profit & Loss account for Startups in Lucknow, Uttar Pradesh – Types, Components, Format, Benefits, Compliances

If you’re an entrepreneur looking to start a business in Lucknow, Uttar Pradesh 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 Uttar Pradesh

Located in northern India, Uttar Pradesh is famously known as the Heartland of India. It is because of its rich culture and historical traditions. This state is the most attractive tourist destination for both Indians as well as non-Indians. This state shares its boundaries with Rajasthan in the west, Haryana, Himachal Pradesh, Uttarakhand, and Delhi in the northwest, Bihar in the east, Madhya Pradesh in the south, and feebly touches the states of Jharkhand and Chhattisgarh in the southeast and an international border with Nepal in the north. This is the most populous state in the country and also the most populated country subdivision state in the world. Uttar Pradesh is the 4th largest in terms of the area constituting about 7.3% of the total geographical area of India. As per the demographics, Hinduism is practiced by more than three-fourths of India’s population, the following is Islam the next largest religious group. Though there are many languages spoken in Uttar Pradesh, among them, Hindi is the most widely spoken and officially acknowledged language.
Uttar Pradesh is the home of various pilgrimage sites, historical monuments, spots of various religious faiths, and several Hindu holy temples. Uttar Pradesh has a rich history with untold and known mysteries that is related to ancient times. This is the land where the great sages have taken birth, the world-famous destination of two great epic Battles of India i.e. Ramayana and Mahabharata. It has popular destinations such as Varanasi (the spiritual capital of India), Allahabad (the holy Sangam of two major rivers – Ganga and Yamuna and iconic Kumbh Mela gatherings held once in 12 years), Agra (the epitome of Mughal architectural perfection and is one of the seven wonders of the world- the Taj Mahal), many other exhilarating tourists. These scenic beauties and heritage sites attract the interest of travelers and represent every facet of Indian culture and ethnicity.
In the past few years, the state has experienced substantial economic growth. Agriculture Sector provides the leading occupation to the population of Uttar Pradesh and plays an important role in the economic development of the state. As per the latest report on net state domestic product (NSDP), Uttar Pradesh is the 2nd largest economy in India after Maharashtra. Uttar Pradesh is the 3rd largest contributor to the economy in terms of GSDP (Gross State Domestic Product) about 8.4 percent of India. According to the census of 2014-15 released by the India Brand Equity Foundation (IBEF), Uttar Pradesh has a 19% share of the country’s total food grain output. This state is the noble hub for the Information Technology (IT) industry, software, and electronic industry, media, and financial institutions such as Noida, Kanpur, and Lucknow. As a result, this state attracts most of the foreign direct investment showing interest in the above-mentioned fields.
Capital- Lucknow
Top Business ideas in Uttar Pradesh
As we know, Uttar Pradesh is the fourth largest state in India in terms of area, it is the noble hub of various industries like Information Technology (IT) industry, Software, and Electronics Department. Uttar Pradesh is enriched with various useful products, applicable to boost the overall production and manufacturing efficiency of the state. We are aware of the fact that in the agriculture sector, Uttar Pradesh is an 18.9 percent contributor to the food grain production of the country. In the past few years, this state has witnessed rapid industrialization and sharp advancement in technological assets. According to the survey of the World Bank and KPMG, Uttar Pradesh is in 10th rank among the Indian States on the ease of doing business and 5th rank in accordance with the labor regulations. Given below are the list of business idea in Uttar Pradesh are: –
Battery Reconditioning Business
As Uttar Pradesh is moving towards industrialization, it caters to various semiconductor industries and research & development centers. Hence, It is a service-based business that offers a lot of opportunities. This is best for the small-scale business idea where very less capital investment is required. Battery renovation work is done by replacing the battery parts and adding some Chemicals by using simple methods. Given below the list of procedures for how to start a battery reconditioning business in India –
• Skilled and experienced labor
• Prepare a well-structured business plan for battery reconditioning
• Necessary raw materials and equipment
• Registration of the business
• Selection of a location for the business
Fashion design business
As you all know that Uttar Pradesh is well-known for the handicraft and handloom industry. We have administered that in the past few years Uttar Pradesh has contributed in this field. Hence it is an excellent business idea for cost-effective and scalable production. Specially incorporated by those who have perfect knowledge of fashion and creative design.
Mention below is the list of procedures for how to start a fashion design business in India –
• Gathering of the information related to various fashion industry opportunities
• Prepare a robust and self-explanatory business plan
• Set up and decide the course you want to offer
• Look for the promotion possibilities
Startup Ecosystem in Uttar Pradesh
Uttar Pradesh state is one of the leading and largest contributors in the field of Information Technology, software development, and the electronic sector. This state is also focusing to work collaboratively with the citizen on developing infrastructure, human capital development, and effective policy implementation. This is done to create a productive ecosystem for the entrepreneurs and investors in the state.
From 2017 to 2022, Uttar Pradesh state initiated the Uttar Pradesh information technology and startup policy. It is the flagship policy of the state government to focus on the core objectives to create an environment that will stimulate the growth of investors entrepreneurs and startups. The vision of this policy is to develop a comprehensive socio-economic environment and focus on creating employment promoting entrepreneurship innovation and enhancing the quality standard life in the state. Hence to crater the entire startup ecosystem, the state has come up with an infuse model(Incubators-Fund of funds-Startup Entrepreneurs).
With this vision of empowering innovation and entrepreneurship in the state, the state government has collaborated with various prominent institutions like IIT-Kanpur, IITBHU, IIM-Lucknow (Noida), KNIT Sultanpur.

Balance Sheet vs. Profit And Loss Statement in Lucknow, Uttar Pradesh

Types of Profit and Loss (P&L) Statements in Lucknow, Uttar Pradesh

There are two methods of preparing a Profit & Loss Statement in Lucknow, Uttar Pradesh -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 Lucknow, Uttar Pradesh?

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh, 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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh?

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh

In India, there are two formats for P&L statements in Lucknow, Uttar Pradesh-

• 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 Lucknow, Uttar Pradesh?

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 Lucknow, Uttar Pradesh

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 Lucknow, Uttar Pradesh, it is necessary to maintain and your P&L periodically and help your business to run on its path to profitability & success.