How to Calculate Profit or Loss from Balance Sheet

Sometime, we need to calculate profit or loss from balance sheet when there is lack of information of current incomes and expenditures, we can take opening and closing balance of assets and liabilities and on this basis, we can calculate our current year profit or loss.

Actually, we make opening statement of affairs and closing statement of affairs for calculating opening and closing capital. But to make opening and closing balance sheet will more understandable for you.  But you should not forget the difference between balance sheet and statement of affairs. We can use word balance sheet on statement of affairs but we can not use the word balance sheet on statement of affairs. Ok, Now, come to the point

1st Step : Prepare Opening Balance Sheet 

Get the information of total assets and total liabilities at the beginning of year. Show it in the list. Compare it and calculate opening capital.

2nd Step : Prepare Closing Balance Sheet

Now, at the end time, count your assets and liabilities. On this basis, calculate your closing capital.

3rd Step : Adjust Closing Capital

You have to adjust your closing capital by adding drawing (money and asset which is used for personal purpose). You have to deduct new or fresh capital from closing capital.

4th Step : Prepare Statement of Profit or Loss

Now, we have to deduct opening capital from adjusted capital. You can leave third step and all adding drawing, deducting fresh capital and deducting opening capital can done in same statement of profit or loss.

Important : In the picture, you are seeing $ 57000 as your current year profit which we obtained by deducting opening from closing capital. Our closing capital is $ 149000 and opening capital is $ 86000. Now, it is simple logic. There is some amounted added in closing capital which may be either added new capital by businessman or our current year earned profit. So, we can easily calculate it.