Profit and loss Flashcards
what is a profit and loss account?
used to calculate whether a business has made profit; summarises all revenue and costs over a period of time; shows banks and investors their financial health
what does profit and loss help with?
it helps to forecast future profits, and helps with planning
cost of sales
opening stock + purchases - closing stock = cost of sales
gross profit
sales revenue - cost of sales
total expenses
the sum of all the expenses
operating/net profit
gross profit - total expenses
net profit before tax
operating profit - interest on loans
net profit after tax
net profit before tax - corporation tax
retained profit
profit after tax - dividends (shareholders)
gross profit margin
(gross profit / revenue) x 100
net profit margin
(net profit / revenue) x 100
what is sales revenue?
money coming in from sales, quantity sold x selling price
what are costs of sales?
costs directly linked to the production of the goods or services sold e.g. raw materials
what are expenses?
all other costs associated with the trading of the business e.g. salaries and marketing expenditure
what is interest?
interest paid on debt or receive on positive balances
what are exceptional items?
one off assets of income e.g. from the sale of an asset
what is profit for the year?
operating profit - interest (tax is still to be deducted)
why else are profit and loss accounts useful?
they can be compared to previous year’s performance; and sum up their business performance to stakeholders
