All about Profit & Loss account for Startups in Srinagar, Jammu and Kashmir – Types, Components, Format, Benefits, Compliances

If you’re an entrepreneur looking to start a business in Srinagar, Jammu and Kashmir 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 Jammu and Kashmir

Popularly known as the “Heaven on Earth,” Jammu and Kashmir are known for their mind-blowing and breathtaking views, snow-covered mountains, exquisite and pertinent monuments, exhilarating wildlife, and local handicrafts. After the Reorganization Act was passed on 31 October 2019, J&K regained its statehood and emerged as a union territory of India. It is located in the northern part of our country, and Jammu and Kashmir share their national boundaries with Ladakh, Himachal Pradesh, and Punjab and its International boundary with Pakistan.
Jammu and Kashmir is a beautiful and picturesque place for tourists from all over the world. Places like Vaishno Devi Temple, Shalimar Gardens, Dal Lake, Amarnath Cave, and many other places are among the major tourist spots. Jammu is known for its temples, whereas Kashmir is known for the lakes, valleys, and gardens. Demographically, there is various language, but the most widely spoken language is Kashmiri. Muslim comprise the majority of the population of Jammu and Kashmir.
The climate in J&K is favorable for agro-based products, horticulture, and floriculture. Horticulture is famous and widely used in rural areas, providing employment to many local inhabitants. This is a crucial and viable step toward fostering the rural economy and enhancing the production of exotic handicraft and handlooms. Jammu and Kashmirare well-known for their small-scale industries such as carpet weaving, silks, shawls, basketry, copper and silverware, pottery, and walnut wood. The Gross State Domestic Product (GSDP) has increased by 8.51% between 2015-16 and 2020-21.
Capital- Srinagar (Summer) and Jammu (Winter)

Top Business Ideas in Jammu and Kashmir
Jammu and Kashmir is a land full of opportunities where one can set up multiple business models. It is stretched from horticulture to the tourism sector and handicrafts. So, one can find numerous business ideas, employing the inhabitants, especially the local women. Given below is the list of ideas by which to start a business: –

Horticulture Business
If you are willing to find a flourishing and thriving business, then horticulture is the best business idea. As per the latest survey report, horticulture is the largest business idea as it constitutes 23% to 25% of the GDP of the Jammu and Kashmir alone. You can create substantial employment opportunities for the young generation through this business. Jammu and Kashmirare rich in mineral soil layers and contain various rivers and water bodies. As a result, Jammu and Kashmir are among the best places for agro-business or farming-related businesses.
You can choose any of the items mentioned below to start your business:
Onion
Vegetable Seeds
Mushroom
Apple
Strawberry
Saffron
Almond
Potato

Handicraft Business
Handicraft is one of the key strengths of Kashmir. In the business of handicrafts, local customization comes in handy. Hence, this state has a huge potential in the field of handicrafts. There are various business products such as carpet weaving, silks, shawls, basketry, etc. Hence, it would be best to have skilled labor and raw materials to start the business. As per the latest records, more than 3.4 lakhs of craftsmen are engaged in this business. So, if you are considering starting your business, a handicraft business is a good choice. As a fact, local handicraft is available in abundance here.

Sericulture Business
From ancient times, Jammu and Kashmir have been well-known for their silk generation as they have various scopes to succeed in the business paradigm. As a fact, Kashmir has the best quality Bivoltine Mulberry silk in India. This silk is famous for its superior quality, soft texture, extended length, and adaptability to all climate changes. The business model possesses a good position in the growth and contribution of the state GDP.

Fishery Business
States like Bihar, Jammu, and Kashmir are also blessed with the water assets stretched around their territory of about 0.4 lacs hectares. This constitutes various high-altitude lakes, rivers, springs, torrential streams, and reservoirs. As we know, stream water is good for fish growth and accumulation, making fisheries an amazing and ideal business model for Kashmir and Bihar.

Poultry Farming Business
Local poultry farming is a thriving and ever-growing business in Jammu and Kashmir. Jammu and Kashmirare well-known for producing the best quality poultry creatures. As a fact, the local people seem fairly interested in consuming more poultry products. You can increase the business reach to various states and cities by expanding the farms and exporting to other states. So, by this method, you can make your lucrative business model within the state.

Startup Ecosystem of Jammu and Kashmir
Scattered pearls cannot make the necklace on their own, so you need to weave them in a common thread that adds elegance, poise, and beauty to the necklace and the pearls. The Jammu and Kashmir state has a similar story. As per the latest changes, the Startup India team thinks the support could be extended to the entrepreneurs. There are over 100 technology-based startups registered with DPIIT and the startup India working across sectors. Various other volunteer organizations, such as Jammu Startup Community and ThinkPods. There is an NIT (National Institute of Technology) that has the required potential to ignite innovation among the bright and young students who study there.
Attempting to accomplish this startup ecosystem task, the government of Jammu and Kashmir government is focusing on various sectors such as food processing, agriculture, renewable energy, and handicrafts by promoting startups in these crucial sectors.
Startup JK is an online platform for all the startup ecosystem stakeholders in J&K, including investors, mentors, accelerators, service providers, and government bodies. This platform provides a medium to connect with other members of the ecosystem and access crucial resources like information about pertinent government schemes, Learning, and Development program, discuss issues, the latest news, and blogs, among others.

Balance Sheet vs. Profit And Loss Statement in Srinagar, Jammu and Kashmir

Types of Profit and Loss (P&L) Statements in Srinagar, Jammu and Kashmir

There are two methods of preparing a Profit & Loss Statement in Srinagar, Jammu and Kashmir -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 Srinagar, Jammu and Kashmir?

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir, 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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir?

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

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 Srinagar, Jammu and Kashmir

In India, there are two formats for P&L statements in Srinagar, Jammu and Kashmir-

• 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 Srinagar, Jammu and Kashmir?

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 Srinagar, Jammu and Kashmir

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