Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e....
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Transcript of Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e....
![Page 1: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/1.jpg)
Profit and loss accountsProfit and loss accounts
![Page 2: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/2.jpg)
What does it show? What does it show?
• Summarises all income and expenditure for a year
• I.e. the difference between the payments a business make and the payments it receives
• The difference is either a profit or a loss
![Page 3: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/3.jpg)
The purpose of profit and loss The purpose of profit and loss accountsaccounts
• Give useful information to various stakeholders in the business i.e. shareholders, customers, managers etc
• Can also be used to compare a business's performance with previous years
• A legal requirement – all limited companies have to draw up a profit and loss account and all limited companies pay a tax on any profits known as corporation tax
• NB sole traders and partnerships pay income tax on profits
![Page 4: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/4.jpg)
Profit and loss account- Firm X Year ending 25 March 2005Profit and loss account- Firm X Year ending 25 March 2005
Sales 150,000
Cost of Sales 75,000
Gross profit 75,000
Expenses
Wages/salaries 35,000
Rent 6,000
Advertising 4,000
Insurance 3,000
Electricity 6,000
Other 1,500
Total Expenses 55,500Net Profit 19,500
![Page 5: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/5.jpg)
The components of the profit and The components of the profit and loss account loss account
• Sales – payments from customers• Cost of sales – money paid by the business
to other businesses for materials and goods• Gross profit – cost of sales taken from
actual sales (useful to compare a businesses' performance with other businesses)
• Expenses – any other outgoings other than cost of sales
![Page 6: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/6.jpg)
The components of the profit and The components of the profit and loss accountloss account
• Expenses – any other outgoings other than cost of sales
• Net profit – amount of money left over after all costs have been paid
• A % of the net profit can be reinvested in the business and/or a % can be paid to shareholders as dividends and a % will be paid as tax to the government
![Page 7: Profit and loss accounts. What does it show? Summarises all income and expenditure for a year I.e. the difference between the payments a business make.](https://reader036.fdocuments.in/reader036/viewer/2022082817/56649dd35503460f94aca11d/html5/thumbnails/7.jpg)
Exercise Exercise
• P 369• Questions 3 & 4• Questions 1 & 2• Integrated activity p 370