1. The Financial Accounts
The Profit and Loss Account

2. The Profit and Loss Account
Is a record of the revenues and costs of a business over a period such as a year. It is an HISTORICAL RECORD.
Making profit is one of the most significant objectives for business organisations. The profit and loss account is therefore a crucial document when judging the success of a business.
Who might use the P&L account? What for?

3. The P&L account may be used by…
Management
Shareholders
Tax authorities
Suppliers
Potential investors

4. Profit Gross profit = Revenue – cost of sales (variable costs)
Net profit = Gross profit – operating costs (fixed costs)
The P&L account is divided into three sections:
trading account...(gross profit)
P&L account...(net profit)
appropriation account...(distribution)

5. Trading Account Sales turnover (A) Cost of sales (B) Opening stock i
Add purchases ii
Less closing stock iii
Gross profit (C) A-B

6. Profit & Loss Account Gross profit (C) A-B Expenses (overheads) Water
Wages
Heating
Insurance
Net profit (E) C-D

7. A Simple Profit & Loss Account
Sales turnover
Cost of sales
Opening stock 50
Add purchases 400
Less closing stock 40
Gross profit _?_
Overheads
Net profit _?_
Tax
Dividends
Retained profit _?_
Trading Account
Profit and Loss Account
Appropriation Account

8. A Simple Profit & Loss Account
Sales turnover
Cost of sales
Opening stock
Add purchases
Less closing stock
Gross profit
Operating costs
Net profit
Tax
Dividends 110
Retained PROFIT