Managing Finances: Income Statement (P+L)

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Presentation transcript:

Managing Finances: Income Statement (P+L) All: Understand why an Income Statement is recorded. Most: Explain the layout of an Income Statement Some: Create a personal Income Statement

Income Statement (P+L) A profit and loss account is an accounting statement showing a firm’s sales revenue over a trading period and all the relevant costs generated to earn that revenue

Who wants to see P+L? Shareholders Government agencies – tax Suppliers Potential shareholders and bankers

The uses of P+L Measures the success of a business compared to a previous year or expectations. Help obtaining loans Allows to plan ahead.

Income Statement Issues PLC has to publish its Income Statement for all to see. Consolidated accounts are normal for very big companies that have lots of business interests – Virgin Group, The Body Shop etc. It is a legal requirement to have accounts Companies Act

Profit and Loss Document

Income Statement (P+L) The Income Statement – Profit and Loss shows if a business has made a profit or loss after trading for a period of time. The income statement is split into three parts; the trading account, the profit and loss account and the appropriation account.

The Trading Account The trading account. This shows the difference between the sales revenue and how much the goods cost to make this is known as the GROSS PROFIT.

Profit and Loss Account This follows on form the trading account and shows the NET PROFIT (OR LOSS) after all the expenses have been taken away from the GROSS PROFIT The expenses may include wages and salaries, rent, rates, insurance, stationery costs, advertising, depreciation (the value a product reduces).

The Appropriation Account This shows how the net profit is distributed Part of it goes to the government as tax Part of it goes to the shareholders in the form of dividends The remainder is retained in the business to pay for new investment in the business

Income Statement Summary Trading Account --- Gross Profit Profit and Loss Account --- Net Profit Appropriation Account --- Distribution of Profits