Profit & Loss Accounts

What is the purpose of a profit & loss account?

• The first part of the statement of comprehensive income. It shows the difference between the sales revenue and the cost of goods sold, which gives the gross profit.

• It forms part of a business' financial statements and shows whether it has made or lost money. It

  shows the trading results of a business over a period of time (typically 1 year) showing the revenue and expenses.

Why is gross profit calculated?

• •Measures how efficiently a business uses labour and supplies for manufacturing goods or offering services to clients.

  •Important when checking the profitability and financial performance of a business.

  •Helps you understand the costs needed to generate revenue.

• •Total amount remaining after subtracting expenses.

  •Helps determine a company's financial stability.

Why is net profit calculated?

• •Measures how efficiently a business uses labour and supplies for manufacturing goods or offering services to clients.

  •Important when checking the profitability and financial performance of a business.

  •Helps you understand the costs needed to generate revenue.

• •Total amount remaining after subtracting expenses.

  •Helps determine a company's financial stability.

Explain the purpose of a balance sheet.

• •Tell you if you have enough cash to run the business or expand it.

  •Show you when more cash is going out of the business than into the business.

• •Gives you a snapshot of your company's financial position at a given point in time.

  •Along with an income statement and a cash flow statement, a balance sheet can help business owners evaluate their company's financial standing.

Explain the purpose of a cash flow forecast.

• •Tell you if you have enough cash to run the business or expand it.

  •Show you when more cash is going out of the business than into the business.

• •Gives you a snapshot of your company's financial position at a given point in time.

  •Along with an income statement and a cash flow statement, a balance sheet can help business owners evaluate their company's financial standing.