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 and the payments it receives The difference is either a profit or a loss

The purpose of profit and loss accounts 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

Profit and loss account- Firm X Year ending 25 March 2005 Sales150,000 Cost of Sales75,000 Gross profit75,000 Expenses Wages/salaries35,000 Rent6,000 Advertising4,000 Insurance3,000 Electricity6,000 Other1,500 Total Expenses 55,500 Net Profit 19,500

The components of the profit and 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

The components of the profit and loss 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

Exercise P 369 Questions 3 & 4 Questions 1 & 2 Integrated activity p 370