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What is a profit and loss statement?
The profit and loss statement is a summary of a business’s income and expenses over a specific period. It should be prepared at regular intervals (usually monthly and at financial year end) to show the results of operations for a given period.
Calculating the cost of goods sold varies depending on whether the business is retail, wholesale, manufacturing, or service business. In retailing and wholesaling, computing the cost of goods sold during the reporting period involves beginning and ending inventories.
This, of course, includes purchases made during the reporting period. In manufacturing, it involves finished-goods inventories, plus raw materials inventories, goods-in-process inventories, direct labor, and direct factory overhead costs.
In the case of a service business, the revenue is being derived from the activities of individuals rather than the sale of a product and hence the calculation of the cost of goods sold is a smaller task due to the low-level use of materials required to earn the income.
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