To get corrected overall profit on the Profit and Loss report I need to add purchases or inventory to the report. Please help in this regard.
Purchase of inventory is not a cost. Selling inventory items will generate income and assign an expense (Loss). Inventory is in the Balance sheet because it is an asset of the business and therefore not seen as an expense (Loss). It only becomes an expense (reduction (Loss) of assets) when sold (Income).
Only income and expenses are part of the Profit and Loss report.
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Thank you very much. My issue is that the Profit and Loss shows a profit, but in fact due to stock purchases the business ran at a loss for the financial year.
I would recommend @Joe91 advise. Profit is related to income and expenses. Purchasing inventory is not an expense because the items are owned by the company and you thus purchased an asset. When you sell that inventory item, only THEN it becomes an expense.
You business shows a profit and not a loss because you still own the inventory items.
Purchasing or making inventory increases the value of a business (Balance sheet entries in Manager) but on the profit and loss side is likely to show as a loss (labour & materials expenses).
Purchasing or making inventory increases the value of a business (Balance sheet entries in Manager)
No, it doesn’t - purchasing or making inventory does not increase the value of the business - the value is exactly the same before and after the purchase
For example, if it is a cash purchase, then the inventory is increased b y the value of the payment and the cash balance is reduced
If it is a credit payment, then the inventory value is increased by the value of the purchase and the payables balance is increased also, so again no change in the value of the business
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