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8 finance_profit_and_loss_account

8 finance_profit_and_loss_account - tutor2u GCSE Business...

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Unformatted text preview: tutor2u GCSE Business Studies 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: st Trading account for XYZ plc for the year ended 31 March 2003 Category Sales Opening Stock Purchases less Closing Stock Cost of Sales Other Costs Gross Profit 1,200,000 150,000 400,000 (220,000) 330,000 (330,000) (70,000) 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 on the following page: tutor2u GCSE Business Studies Trading, profit and loss account for XYZ plc for the year ended 31 March 2003 '000 Turnover (sales) revenue Cost of sales 1,200 The amount of money generated by sales (400) The cost of making the goods or buying them Examples e.g. 400 cars at 3,000 each st Raw materials Cost of labour working directly on each product Cost of running the machines/equipment Gross profit Overheads or expenses 800 Turnover minus cost of sales (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 Interest and taxation payable Net profit after tax and interest Dividends Retained profit 480 Gross profit minus overheads Also known as NET PROFIT (200) The money that is due to be paid in interest on loans and to the Inland Revenue as tax 280 The money available to be distributed to shareholders (170) Money paid to shareholders as a reward for holding shares 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. Key Links for GCSE Business Studies http://www.tutor2u.net/ Discussion Board for GCSE Business Studies Other GCSE Business Studies Revision Notes and Resources from tutor2u Tutor2u GCSE Business Online Store ...
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