Profit and Loss Essay

proceeds and waiver tales, ease palls Profit and loss grudges, parallelism tackings 2 of the most Copernican financial statements for a duty atomic proceeds 18 the Profit and Loss Account, and the equilibrate airplane. The Profit and Loss Account shows the profit or loss of a tune over a given decimal point of beat e. g. 3 months, 1 course of study, etcetera In contrast, the eternal rest Sheet is corresponding a photograph taken at an instant in time grown a picture of what the stage business owns and what the business owes at that moment in time. As we shall see it forget al delegacys balance because what the business owns is financed by what the business owes. The Profit and Loss (P&L account) realize profit takes account of another(prenominal) sources of income and expenditure that atomic number 18 not twisting in approach pattern trading operations e. g. busy paid on loans and interest received on having a positive balance in a bank account. Turnov er is the treasure of gross gross revenue made in a trading period. It is some eferred to as sale revenue and is mensural by the average price of items change x the number sold. Cost of sales calculates the direct be of manufacturing items, or geting in items to sell them on. Expenses are the overhead costs of outpouring a business. These overheads cant be tied down to finicky cost units. For practice, it would be very operose to calculate what fraction of the thawing cost of a pen factory can be allocated to estimable unity pen. The Balance Sheet is a statement showing the assets, liabilities and proprietors keen of a business at a concomitant Downloaded from The100 Edition http//www. he100. co. uk moment in time, for spokesperson the year end. The Balance Sheet balances because the assets that a business possesses at a specific time adjudge been financed either through the provision of peachy by the possessors or by the creation of fall outer liabilities encourage of assets = Value of Liabilities Value of Owners capital. There are a number of things that we can see from looking at a balance sheet, for example 1. The terminate Assets of the business, i. e. the difference between the treasure of the assets and the value of the liabilities.A gain in net assets tends to indicate a development business. 2. How solvent the business is. In other words, does it have enough assets that are minuscule bourn, and hence easily converted into cash, to pay any pressure short-term liabilities. Case Example A typical balance sheet will be set out in the following way (note that we use cardinal chromatography columns. The first column is for minor calculations, the second column is for grand totals) Balance Sheet of higher-up Traders, as at thirty-first December 2004 Fixed assets consist of those items that are kept at bottom the business to create wealth over a period of time e. . machinery, equipment, vehicles, computers, etc. real ass ets are used in the short period to buzz off income for a business. For example, in a manufacturing company like Kraft, stocks would represent products that have already been made and are waiting to be sold onto retailers. typically stocks will be sold on credit for periods of one month, two months, or three months. Retailers buying stocks on credit from Kraft would release Krafts debtors. At the end of the credit period they will pay up in the form of cash, enabling Kraft to buy more raw materials to create further stocks.Creditors due within one year are the sums that a business owes money to in the short period otherwise known as authentic liabilities. Net new assets is a measure of how solvent or liquid a business is. Many businesses need to have working capital. Working capital is calculated by subtracting current liabilities from current assets Working capital = latest assets Current liabilities Note that the figure for net current assets appear nigh in the centre of a balance sheet, and is a figure that umpteen muckle will look at first to check on the solvency of a business.Total assets current liabilities is a sum that appears in the balance sheet simply doing what the title suggests. Creditors due after more than one year shows the retentiveer term liabilities of the bsiness. Total net assets is calculated by fetching away all the liabilities (both current and long term) from all of the assets (both current and long term). Shareholders funds shows the value of the shareholders capital in the business. It will unendingly be the same value as the total net assets and it balances the account. Downloaded from The100 Profit and loss accounts, balance sheets Profit and loss accounts, balance sheetsTwo of the most weighty financial statements for a business are the Profit and Loss Account, and the Balance Sheet. The Profit and Loss Account shows the profit or loss of a business over a given period of time e. g. 3 months, 1 year, etc. In contr ast, the Balance Sheet is like a photograph taken at an instant in time giving a picture of what the business owns and what the business owes at that moment in time. As we shall see it will always balance because what the business owns is financed by what the business owes. The Profit and Loss (P&L account) One of the most important objectives of a business is to make a profit.The P&L account shows the extent to which it has been successful in achieving this objective. Companies are expected to keep their P&L accounts in certain formats. Typically the P&L account will show the revenues received by a business and the costs involved in generating that revenue. In simple terms Revenues Costs = Profits. A typical P&L account will look like the following Case Study P&L Account for Superior Traders as at 31/12/2004 You can find out the gross profit of a business by deducting cost of sales from turnover ? 100,000 ? 50,000 = ? 0,000 You can find out the operating profit by deducting the e xpenses from the gross profit ? 50,000 ? 30,000 = ? 20,000 You may also come across the term net profit. Operating profit is earned from carrying out a businesses normal operations e. g. producing confectionery, or selling Christmas cards. Net profit takes account of other sources of income and expenditure that are not involved in normal operations e. g. interest paid on loans and interest received on having a positive balance in a bank account. Turnover is the value of sales made in a trading period.It is sometimes referred to as sale revenue and is calculated by the average price of items sold x the number sold. Cost of sales calculates the direct costs of manufacturing items, or buying in items to sell them on. Expenses are the overhead costs of running a business. These overheads cant be tied down to particular cost units. For example, it would be very difficult to calculate what fraction of the heating cost of a pen factory can be allocated to just one pen. The Balance Shee t is a statement showing the assets, liabilities and owners capital of a business at a particular Downloaded from The time 100 Edition oment in time, for example the year end. The Balance Sheet balances because the assets that a business possesses at a specific time have been financed either through the provision of capital by the owners or by the creation of external liabilities Value of assets = Value of Liabilities Value of Owners capital. There are a number of things that we can see from looking at a balance sheet, for example 1. The Net Assets of the business, i. e. the difference between the value of the assets and the value of the liabilities. A growth in net assets tends to indicate a growing business. Creditors due within one year are the sums that a business owes money to in the short period otherwise known as current liabilities. Net current assets is a measure of how solvent or liquid a business is. Many businesses need to have working capital. Working capital is calc ulated by subtracting current liabilities from current assets Working capital = Current assets Current liabilities Note that the figure for net current assets appear almost in the centre of a balance sheet, and is a figure that many people will look at first to check on the solvency of a business.Total assets current liabilities is a sum that appears in the balance sheet simply doing what the title suggests. Creditors due after more than one year shows the longer term liabilities of the bsiness. Total net assets is calculated by taking away all the liabilities (both current and long term) from all of the assets (both current and long term). Shareholders funds shows the value of the shareholders capital in the business. It will always be the same value as the total net assets and it balances the account. Downloaded from The Times 100 Edition.