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

If you’re an entrepreneur looking to start a business in Ranchi, Jharkhand 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 Jharkhand

Jharkhand is popularly known as “The land of Forest” or “Bushland” and is a favorite place for nature lovers and wildlife fanatics. This state is blessed with unparalleled beauty, such as the hills, mountains, forests, and waterfalls. In short, this state is the perfect place for holidays, especially for people who have a keen affection for the vibes of nature. It is located in the northeastern part of our country. On 15 November 2000, the Jharkhand state was carved out from the state of Bihar under the Bihar Reorganization Act.
Jharkhand shares its boundaries with Bihar in the north, Uttar Pradesh in the northwest, Chhattisgarh in the west, Odisha in the south, and West Bengal in the east. Jharkhand consists of various cities, among which the major ones are the Ranchi, known as ‘the City of Waterfalls’ and, due to its abundant mineral resources, also named ‘Manchester of the East.’ Jamshedpur is known as ‘The Steel City of India’ best place for the investors and industrialists; Hazaribagh is known for the ‘Hazaribagh national park’ and popularly named ‘the City of thousand gardens’ and many more.
It is the 15th largest state in terms of area and the 14th largest in terms of population. Demographically, many languages are spoken; among them, the major one is Hindi. This state is rich in mineral resources and accounts for more than 40% of India’s mineral resources. Jharkhand is among the leading states in terms of economic growth. As per the 2017-18 info, the GDP growth rate of this state is around 10.22%. Agriculture is another sector to stimulate the economy of Jharkhand.
Capital- Ranchi

Top Business Ideas in Jharkhand
Jharkhand has an incredible response mechanism that provides the effective growth of potential business models across the state in the different business niches. The economy of Jharkhand is primarily influenced by the large chunks of land reserved for crop cultivation, coal, and mineral reserves. Hence, this state has immense potential to foster many manufacturing and service-oriented businesses. Not only is Jharkhand known for various new business opportunities, but it also recognizes itself in the 3rd position in terms of ease of doing business.

Manufacturing Business
Jharkhand is a mineral-rich state. The minerals which are present in abundance like iron ore, kainite, asbestos, mica, copper ore, silver, gold, graphite, etc. Due to this abundance presence of minerals provides robust and feasible opportunities for starting up a manufacturing business in Jharkhand. Thus, there is an actual preferable condition for the expansion of your business model as the state has been going through resource depletion. With proper understanding and knowledge of starting the manufacturing business, you utilize the current situation to a favorable outcome.

Organic Food Production Business
As per the current scenario, the prices of organic food are comparatively higher than the food crops that are grown conventionally. Nowadays, people are concerned and aware of their health benefits. As per the latest reports, the everyday diet intake has less nutritional content in it. This is due to the increased use of chemical products like fertilizers, pesticides, etc., in farming practices. As a result, this has led to the rising demand for organically grown food crops. Interested investors or people should have some practical knowledge, experience, and understanding of the business opportunities present in Jharkhand.

Fishery Business
Fishery Business is the most exponential growing business in the food production sector contracted in both domestic and international domains. In short, you can either supply fish in the local market or export abroad. However, remember to contact the processing units beforehand. This is a highly lucrative business model in Jharkhand. Hence, to start the business, you need to choose the type of fish you will harvest, which would depend on the type of fish in greater demand in the market. Next, you have to arrange some necessary things like land, artificial ponds with fully equipped oxygen supply, fish feed, labor, transportation, water supply, maintenance staff, etc.

Alteration Services Business
The women in Jharkhand purposefully prefer the alteration business. This Business requires a few simple things such as a creative mind, sewing skills, and knowledge of measurement. You can easily run this business if you acquire these skills or qualities. Now, it’s upon you who will decide what kind of services you will offer, such as designer wear, casual wear, cushion covers or pillow covers, bedsheets, etc. Investment is required to access sewing machines, land, labor, and raw material. The next thing which you should focus on is how to attract clients for the trade. For this, you must provide good quality services and products with good communication inclination to attract more and more clients.

The startup ecosystem in Jharkhand
The state of Jharkhand has a huge potential for industrialization and the manufacturing sector; about 40% of the state’s mineral resources provide an excellent and exquisite base for the startups. The state attracts investment in the sectors like mining, engineering, iron, steel, metal extraction, etc. For the significant growth of the engineering industry, there is a requirement for abundant raw materials, power, industrial labor, and water. Besides this, the state offers various sites for the scale of horticulture and natural fibers.
The government of Jharkhand aims to create various business opportunities for every bracket of society, and the target is to become the leading avenue for startups by 2022. Hence, to ignite the spirit of creative and effective business ideas and innovation among the people in the state and to convert the ideas into potential business opportunities, the state government came up with a Startup Policy in 2016. This policy aims to create a startup ecosystem, stimulate growth, and foster at least 1000 direct startups and support 1500 startups by 2022.

Balance Sheet vs. Profit And Loss Statement in Ranchi, Jharkhand

Types of Profit and Loss (P&L) Statements in Ranchi, Jharkhand

There are two methods of preparing a Profit & Loss Statement in Ranchi, Jharkhand -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 Ranchi, Jharkhand?

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand, 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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand?

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

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 Ranchi, Jharkhand

In India, there are two formats for P&L statements in Ranchi, Jharkhand-

• 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 Ranchi, Jharkhand?

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 Ranchi, Jharkhand

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