Question

In: Finance

Please provide a short definition of the following terms along with an example of each. a....

Please provide a short definition of the following terms along with an example of each.

a. GAAP:

b. P&L Statement

c. EBITDA

d. COGS

Solutions

Expert Solution

GAAP : GAAP stands for Generally Accepted Accounting Principles. GAAP are the rules, regulations, methods and practices for accounting purpose. GAAP are applied in business and corporate practices. GAAP are the set of rules which every business entity should follow for presenting true an fair accounting results. For examples: Matching principle, going concern principle, accrual principle are the examples of GAAP.

P& L Statement: Profit and loss statement is an part of financial statements of an entity. All the transaction related to income and expenses of current financial year are recorded in statement of P&L. For the purpose of compliance with Matching Principle of accounting, prepaid, accrued, outstanding and unearned expenses and incomes are also adjusted in Statement of P&L. The outcome of P&L Account is Net profit or Net Loss.

EBITDA: This standsfor Earnings after interest, taxes, depreciation and amortisation. EBITDA reflects the proxy cash flows of the entity as non cash items like depreciation has not been taken into consideration while calculating EBITDA. EBITDA is the operating profits to the entity before adjusting interest, taxes and depreciation & amortisation to the profits.

COGS: It stands for cost of goods sold. COGS is the total price of all inventory sold to customers during a period.

COGS CAN BE CALCULATED AS FOLLOWS:

COGS= Opening inventory+ purchase during the year - closing inventory


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