The profit and loss account and cash flow statement are introductory presentations of the company’s activities. And they are straightforward to understand.
a) Profit and loss statement: All you need to remember is that whatever income is received by the company is written on credit (right) side. Whatever expense is incurred by the company is written on the debit (left) side of the statement. The key figures on the right side to focus are sales revenue and any other income the organization has earned during that period. It is essential to observe the primary sources of payment for the company. Naturally, on a bank’s P&L account, it would be mainly interest received from loans and advances, and investments. For a manufacturing organization, it should be sales proceeds from its products and other ancillary services. Similarly, the debit (left) side shows the expenses/losses incurred by the organization during that period. You may focus on a particular kind of payments like personnel cost, cost of materials, advertising and marketing expenditure, etc.
b) Cashflow statement is slightly more technical in its composition than profit and loss account. It consists of mainly 3 parts:
1) Operating activities (core business activities),
2) Investing activities representing investments made by the company, and
3) Financing activities representing the capital structure of the company.
Consider this. Walmart sells wares on its online portal. But it needs money to run its operations. So, say it raises $ 1 million from some source. Now, it invests $ 0.5 million from the amount in building the online infrastructure and logistics network and uses $ 0.5 million in the routine operations of the firm. > 1 million raised will be a part of financing activities in CFS. > o.5 million used in advertisement will be a part of investing activities in CFS. > 0.5 million used in daily operations will be a part of operating activities in CFS.