BALANCE SHEET PROFIT, LOSS

Jul 15, 2019 981 Words  4 Pages

Profit and loss accounts and balance sheet

By law companies are expected to produce financial statements each year. These statements appear in Company Reports. There are two main financial statements:

1. The profit and loss account, and

2. The balance sheet.

1.The profit and loss (P&L) account.

This account can be updated regularly and shows how much profit or loss a business is making. A profit can be made in several ways, for example:

* from trading, in the case of a High Street shop, i.e. buying and selling items such as clothes and furniture

* from manufacturing, for example a company like Kraft produces chocolate bars and other foodstuffs. It buys in raw materials such as cocoa and sugar which it processes to make chocolate.

The top section of a P&L account is known as the trading account for a business that buys and sells items e.g. a bookshop. What is known as the gross profit is calculated by deducting cost of sales from turnover.

For example:

Turnover is sometimes referred to as sales revenue and is calculated by multiplying the number of items sold by their average price.

For example if the average price of a book is Rs.10.

The number of books sold is 10,000.

The turnover is therefore: 10,000 x Rs10 = Rs.100,000

Cost of sales is the cost of buying in the items to trade them. In this case the cost of b