Profit and Loss Accounts

Question 1

What is a profit and loss account?

Answer 1

A document that summarises all of a businesses revenue and costs over a period of time, usually a year. It is then used to calculate how much of a profit or loss has been made.

Question 2

When does the tax year start and end each year?

Answer 2

April 6th - April 5th

Question 3

State 3 purposes of producing a profit and loss account.

Answer 3

1) Legal requirement
2) Sums up performance of a business to stakeholder.
3) Companies must produce audited annual accounts for the Inland revenue - For the business to be able to calculate how much tax they owe.

Question 4

What is the formula for GROSS PROFIT?

Answer 4

Gross profit = Sales revenue - Cost of Sales

Question 5

What is the formula for COST OF SALES?

Answer 5

Cost of sales = Opening stock + Purchases - Closing Stock

Question 6

What is the formula for OPERATING/NET PROFIT?

Answer 6

Net profit = Gross Profit - Total Expenses

Question 7

What is the formula for NET PROFIT BEFORE TAX?

Answer 7

Net profit before tax = Operating Profit - Interest On Loan

Question 8

What is the formula for PROFIT AFTER TAX?

Answer 8

Profit after tax = Net Profit Before Tax - Corporation Tax

Question 9

What is the formula for RETAINED PROFIT?

Answer 9

Retained profit = Profit After Tax - Dividends

Question 10

What is the formula for GROSS PROFIT MARGIN?

Answer 10

Gross profit margin = (Gross Profit / Revenue) x 100

Question 11

What is the formula for NET PROFIT MARGIN?

Answer 11

Net profit margin = (Net Profit / Revenue) x 100