What is it, what is it for and how to set up your DRE?
Understanding what DRE is is essential to correctly prepare this statement and take advantage of the benefits it can offer. Check it out!
Monitoring your enterprise’s financial outcomes is critical for making choices which might be aligned along with your planning. It is likewise vital to attend to the employer’s figures to lessen risks and keep away from threats that could have an effect on its operations. In this feel, it is really worth understanding what DRE is.
After all, that is one of the maximum comprehensive reports for reading the scenario of your business. By providing the information, you’ll have a wide view of the organization’s prices and income. For this purpose, it is crucial that you know the way to put together this record.
What is DRE?
The income statement ( DRE ) is a management report whose main function is to present the company’s results vertically. Through it, it is possible to understand the composition of the company’s profits and costs in a given period.
Therefore, the document lets in you to element the company’s internet overall performance, indicating all inflows and outflows as they arise. This manner, you may have a more entire view of the business’s operational and non-operational effects.
What is the DRE for?
Just as essential as understanding what the DRE approach is understanding the importance of this report. In exercise, this is a tool that allow you to apprehend your enterprise’s monetary consequences.
Through this record, you’ll be capable of perceive whether or not the commercial enterprise has made a earnings or a loss. After all, having a excessive turnover is not enough to make sure that the employer’s finances are wholesome.
Since this document is presented vertically, it permits you to pick out ability bottlenecks and areas for interest. For example, you can find out while your company began to suffer losses or which financial actions had the best effect on effects.
Therefore, the DRE is vital for extra entire and records-based totally financial management. In addition, the document is part of the corporation’s accounting responsibilities. Therefore, it additionally serves to preserve the regularity of your business.
What are the risks of not having a DRE?
Despite its importance, not all entrepreneurs and managers prepare the DRE as they should. However, this situation can generate negative impacts, affecting the company’s overall results.
The losses of not having a DRE involve, firstly, the failure to comply with an accounting obligation. By law, all companies — except MEIs (individual microentrepreneurs) — must prepare a DRE every calendar year, together with the balance sheet . Therefore, failure to generate this report may result in sanctions, such as the payment of fines.
There are also losses in terms of management. With the DRE, it is possible to delve deeper into the company’s finances and identify problems and threats. Failure to do so, on the other hand, means that you are left without essential information to maintain the company’s financial health.
Therefore, not preparing this report makes it more difficult for you to manage your business finances, which can harm your profitability and competitiveness. In the case of small and medium-sized companies, this can be crucial for survival in the market.
How to set up your DRE?
Now that you know what the DRE is and why it is important to prepare this report, it is worth understanding how to prepare the statement. To do this, you need to know the structure and what information the document should contain.
Below, check out the main elements that must be included in the DRE!
(=) Gross revenue
Gross revenue corresponds to the sum of the profits that the company obtained in the period under analysis. It considers income from product sales and other sources of income.
(-) Deductions and taxes
Next, there is an indication of the discounts offered, sales returns and the taxes that apply to them.
(=) Net operating revenue
After deducting gross revenue, you will be able to arrive at the net operating revenue — but it is different from profit, as you will see.
(-) Cost of sales
The next item of information on the income statement involves sales-related costs. These include expenses for products sold, raw materials, and services provided. Therefore, this step includes the expenses the company has to manufacture or sell products and to provide services.
(=) Gross operating income
By deducting the costs of sales, we arrive at the gross operating result. This is also called gross operating profit and indicates how much the company was able to generate from its production activities.
(-) Operating expenses
Next, operating expenses, such as fixed and administrative costs, must be deducted. Sales costs, such as commissions paid, must also be deducted.
(-) Net financial expenses
Next, financial expenses, such as interest and possible fines, are discounted. This category also includes the payment of certain fees, such as taxes that are levied on certain financial transactions.
(=) Operating income before income tax and social contribution
With the previous discounts, it is possible to arrive at the operating result before Income Tax (IR) and Social Contribution on Net Profit (CSLL). It is also called net operating result, gross profit or contribution margin.
(-) Payment of IR and CSLL
In the next phase, the provision to pay the IR and CSLL due is calculated, considering the company’s tax classification. The discount applied, therefore, adds the amounts relating to the two taxes.
(=) Net result for the year
Finally, the last line of the DRE shows the net result for the year. This is where you will know whether, after the entries and exits recorded, the company made a profit or a loss.
To facilitate the assembly of each of these steps, it is interesting to rely on technology. With financial control software, it will be easier to record all the information and generate the report, favoring the analysis of the company over time.
