From the course: A Guide to Understanding Financial Statements

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Conventional vs. functional classification for profit and loss

Conventional vs. functional classification for profit and loss

From the course: A Guide to Understanding Financial Statements

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Conventional vs. functional classification for profit and loss

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- [Instructor] Let's now turn our discussion to the difference between a conventional and a functional profit and loss. See, there are many ways that you can present a profit and loss, but they generally get presented in one of these two different views. The most common way that you'll view a profit and loss is in the format of a conventional profit and loss. That showcases our revenue, cost of goods sold, gross profit, operating expenses, and then net operating income, other income and other expenses and net income. For manufacturing companies, however, you may view the information slightly differently. Instead, this is a functional profit and loss, which showcases direct costs under revenue instead of cost of goods sold, which relate to the direct materials, labor, or overhead that factor in to each sale. Instead of operating expenses, you may see a section called Indirect Costs. Indirect costs can also be called Selling, General, and Administrative. It generally showcases the same…

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