Powered by Leeds Metropolitan University
Business Studies Resources Popular resources on the {my channel} blog Resource tags for the blog RSS Feed for the blog Twitter feed for this blog Teacher Email Resource Newsletter Category listing for this blog Business Studies Blog Home Page

Profit and Loss Account

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Profit and Loss Account

The purpose of the profit and loss account is to:

  • Show whether a business has made a PROFIT or LOSS over a financial year.
  • Describe how the profit or loss arose – e.g. categorising costs between “cost of sales” and operating costs.

A profit and loss account starts with the TRADING ACCOUNT and then takes into account all the other expenses associated with the business.

Trading account

The trading account shows the income from sales and the direct costs of making those sales. It includes the balance of stocks at the start and end of the year.

An example of the trading account of a business would look this:

Trading account for XYZ plc for the year ended 31 st March 2003

Category

£

£

Sales

 

1,200,000

Opening Stock

150,000

 

Purchases

400,000

 

less Closing Stock

(220,000)

 

Cost of Sales

330,000

(330,000)

Other Costs

 

(70,000)

Gross Profit

 

800,000

Note that the closing stock figure would appear in the balance sheet under Stock.

Profit and loss account

The trading account now has all the other expenses now deducted.

It would look like the table below:

Trading, profit and loss account for XYZ plc for the year ended 31 st March 20X3

 

£’000

 

Examples

Turnover (sales) revenue

1,200

The amount of money generated by sales

e.g. 400 cars at £3,000 each

Cost of sales

(400)

The cost of making the goods or buying them

Raw materials

Cost of labour working directly on each product

Cost of running the machines/equipment

Gross profit

800

Turnover minus cost of sales

 

Overheads or

expenses

(320)

Costs not directly involved in the production process (indirect costs)

Cost of premises e.g. rent, insurance, repairs

Office costs e.g. stationery, postage, computer maintenance, staff salaries and wages

Sales and marketing costs e.g. salaries of salesmen, advertising

Finance costs e.g. bank charges, interest on bank loans

Operating profit

480

Gross profit minus overheads Also known as NET PROFIT

 

Interest and taxation payable

(200)

The money that is due to be paid in interest on loans and to the Inland

Revenue as tax

Net profit after tax and interest

280

The money available to be distributed to shareholders

Dividends

(170)

Money paid to shareholders as a reward for holding shares

Retained profit

90

The money left for the business to reinvest

The business has to pay tax at the rate determined by the government and interest at the rates determined by the lenders.


Other Business Study Resources You Might Like on tutor2u


Revision quizzes for business students

Starting a Business

Sources of Finance for a Startup
Franchising
Cash Flow Forecasting for a Startup
Creating & Protecting Business Ideas
Startups and Understanding the Market
Market Research for a Startup
Locating the Startup Business
Choosing a Legal Structure for a Startup
Employing People in a Startup
Generating and Protecting a Business Idea
Using Breakeven in Decision-Making

Finance

Revenues
Breakeven Basics
Costs, Revenues and Profits
Business Costs
Using Budgets
Using Breakeven in Decision-Making
Investment Appraisal Basics
Financial Strategies
Measuring and Improving Profit
Improving Cash Flow
Working Capital
Balance Sheet
Income Statement
Financial Efficiency Ratios
Profitability Ratios and ROCE
Liquidity Ratios
Gearing

Marketing

Competition
Products & Brands
Place (Distribution)
Promotion
Pricing
Price Elasticity of Demand

Business Organisation

Basics of Business Growth
Business Activities
Legal Structure Basics
Franchising
Sole Traders and Partnerships
Limited Companies
Generating and Protecting a Business Idea
Organisational Structures

People

Working in Teams
Communication Basics
Communication Methods
Workforce Planning
Recruitment, Selection & Training
Employee Motivation
Organisational Structures

Operations

Operational Objectives
Critical Path Analysis
Scale and Resource Mix
Lean Production
Capacity Management
Customer Service Basics
Managing Quality
Operational Decision-making
Using Technology in Operations
Working with Suppliers

Economic Environment

Economic Sectors
Government Spending & Taxation
Inflation
Unemployment
Interest Rates & Monetary Policy

Business Strategy

Leadership styles
Business Culture
Change Management







Add your comments and share this study note:

blog comments powered by Disqus

 

Tutor2u support for students
Teaching support and resources
Search for resources on tutor2u

Law



Refine Search by Subject
A Level Economics
Business Studies
Geography Give It A Go!
History Law
IB Diploma Politics
Religious Studies Sociology

Order Search Results By


Follow tutor2u on Twitter
   
   

tutor2u Home Page | Online Store | About tutor2u | Copyright Info | Your Privacy | Terms of Use

tutor2u

Working with Our Partners

 Zondle - Games for LearningVue Cinemas | Moneypenny | Nexcess | Really Simple Systems 

Boston House | 214 High Street | Boston Spa | West Yorkshire | LS23 6AD | Tel +44 0844 800 0085 | Fax +44 01937 529236

Company Registration Number: 04489574 | VAT Reg No 816865400

tutor2u is proud to sponsor TABS Cricket Club and the Wetherby Cricket League as part of its commitment to invest in local junior sport