Profit And Loss Accounts

Question 1

Profit and loss account

Answer 1

An accounting statement showing an organisation’s sales revenue over a trading period, and all the relevant costs incurred in earning that revenue (income and expenditure)

Question 2

Cost of sales and formula

Answer 2

Any direct costs, such as raw materials, wages, used in the production process

Opening stock
+purchases
-closing stock

Question 3

Gross profit and formula

Answer 3

The difference between the revenue from selling the product and the direct costs of making it

Sales revenue - cost of sales

Question 4

Net profit and formula

Answer 4

The profit that belongs to the sole trader following the reduction of all expenses from the gross profit- the sole trader has to pay income tax on this

Gross profit - expenses

Question 5

Profitability

Answer 5

Measures a business’ total profit against resources used in making that profit- these profitability ratios are used to asses how well the business is performing and they concentrate on profit, capital employed and turnover

Question 6

Gross profit % and calculation

Answer 6

Measures the proportion of money left over from revenues after accounting for the cost of goods sold

Gross profit
÷ x100
Sales revenue

Question 7

Reasons for change in gross profit

Answer 7

•increase or decrease in sales turnover
•increase or decrease in cost of goods sold

Question 8

Net profit % and calculation

Answer 8

Measures how much out of every pound of sales a company actually keeps in earnings

Net profit
÷ x100
Sales revenue

Question 9

Reasons for change in net profit

Answer 9

•increase or decrease in sales turnover
•increase or decrease in cost of goods sold
•increase or decrease in expenses