Trading profit and los account Flashcards
What is the purpose of profit and loss accounts
Give a historic view of the businesses trading income and expenditure aver a 12 month period - doesn’t have to be Jan - Jan
What is the first section of a profit and loss account called and what does it show
the trading account shows what sales the business have been and the cost of making those sales
How do you calculate cost of sales
Add opening stock (stock you have at start of year) to purchases business has made during the year and take away closing stock ( stock left over at the end of the year)
Next take away closing stock (stock left over at the end of year)
Opening stock+purchases-closing stock
What does gross profit indicate
How good a business is at making and selling products
What is net profit also called and why
The bottom line because it is a simple presentation of a profit and loss account and it tells us actual profit of the business after all costs have been paid out
What are expenses
indirect costs to the business not costs of production eg rent, interest payments, electricity
How do we calculate net profit
Gross subtract expenses
What does net profit indicate
how efficient the business is overall because revenues an expenses are included in the calculation
