statements for several years may reveal desirable or undesirable trends in the profit earning capacity of a business enterprise. Revenues, Expenses and Changes in Owners’ Equity Defined more precisely, revenues are increases in owners’ equity that result from operations of a business enterprise while decreases in owners’ equity are expenses. Revenues take the form of an inflow of assets like cash and sundry debtors from customers or clients to whom products have been sold or services rendered. Revenues might also be earned from investments, for instance, interest on Govt. securities or dividends. It should be noted that revenues are not the only source for increase in owners’ equity. An inflow of capital funds invested by owners increases owners’ equity but it is not revenue. Expenses connote “sacrifice made”, “cost of services or benefits received”, or ’resources consumed’ during a specified period. Expenses are costs incurred for generating revenue and are therefore related to the operations of a business enterprise. As stated earlier, expenses decrease owners’ equity, however they are incurred in the expectation that the revenues generated will more than offset the decrease in owners’ equity. The excess of earned revenues over the incurred expenses in a specific period is called profit or income. If expenses exceed revenues the difference is called a loss resulting in net decrease in owners’ equity.
The Format of the Profit and Loss Statement can be seen from the Exhibit A furnished below: Exhibit ‘A’ DHRUPAD COMPANY Profit and Loss Statement for the year ended March 31, 2006 Rs. Sales of goods and service Cost of goods sold APOORVA GHOSH 4108024024 MBF 2008-2010
107
1,44,73,526 79,88,956