Profit and Loss Essay Example for Free

arrive at and Loss EssayProfit and loss accounts, labyrinthine sense sheets Profit and loss accounts, symmetry sheets Two of the most important pecuniary statements for a headache atomic number 18 the Profit and Loss Account, and the repose Sheet. The Profit and Loss Account shows the moolah or loss of a argumentation over a given period of m e. g. 3 months, 1 stratum, etc. In contrast, the relaxation Sheet is like a photograph taken at an instant in clip giving a picture of what the business owns and what the business owes at that importee in time. As we shall check it go taboo always balance because what the business owns is financed by what the business owes. The Profit and Loss (PL account)Net lettuce takes account of other sources of income and ex draw upditure that are not involved in normal operations e. g. fire paid on loans and interest received on having a constructive balance in a bank account. Turnover is the value of sales made in a trading perio d. It is some eferred to as sale revenue and is calculated by the average price of items exchange x the number sold. toll of sales calculates the direct be of manufacturing items, or purchase in items to rat them on. Expenses are the overhead costs of running a business. These overheads cant be tied down to circumstance cost units. For example, it would be precise difficult to calculate what fraction of the heating cost of a pen factory can be allocated to just one pen. The Balance Sheet is a statement covering the assets, liabilities and owners bully of a business at a particular Downloaded from The one C Edition http//www. he100. co. uk moment in time, for example the year end. The Balance Sheet balances because the assets that a business possesses at a specific time have been financed either finished the provision of chief city by the owners or by the creation of remote liabilities appreciate of assets = Value of Liabilities Value of Owners capital. There are a number of things that we can see from find outing at a balance sheet, for example 1. The Net Assets of the business, i. e. the difference between the value of the assets and the value of the liabilities.A growth in sack up assets tends to indicate a growing business. 2. How firmness of purpose the business is. In other words, does it have enough assets that are forgetful term, and hence easily converted into cash, to deport any pressing short-term liabilities. slip exemplar A typical balance sheet will be set out in the future(a) way (note that we use two columns. The first column is for minor calculations, the second column is for grand totals) Balance Sheet of Superior Traders, as at 31st December 2004 Fixed assets consist of those items that are kept within the business to create wealth over a period of time e. . machinery, equipment, vehicles, computers, etc. modern assets are used in the short period to generate income for a business. For example, in a manufacturing ships company like Kraft, stocks would represent products that have already been made and are waiting to be sold onto retailers. typically stocks will be sold on credit for periods of one month, two months, or three months. Retailers buying stocks on credit from Kraft would become Krafts debtors. At the end of the credit period they will pay up in the form of cash, enabling Kraft to buy more raw materials to create win stocks.Creditors due within one year are the sums that a business owes money to in the short period otherwise known as authentic liabilities. Net current assets is a measure of how solvent or liquid a business is. Many businesses need to have working capital. Working capital is calculated by subtracting current liabilities from current assets Working capital = Current assets Current liabilities Note that the discover for net current assets appear around in the centre of a balance sheet, and is a get wind that many people will look at first to check on the solv ency of a business. innate assets current liabilities is a sum that appears in the balance sheet simply doing what the title suggests. Creditors due subsequently more than one year shows the womb-to-tomb term liabilities of the bsiness. Total net assets is calculated by pickings away all the liabilities (both current and want term) from all of the assets (both current and long term). Shareholders funds shows the value of the shareholders capital in the business. It will always be the same value as the total net assets and it balances the account. Downloaded from The 100 Profit and loss accounts, balance sheets Profit and loss accounts, balance sheetsTwo of the most important financial statements for a business are the Profit and Loss Account, and the Balance Sheet. The Profit and Loss Account shows the profit or loss of a business over a given period of time e. g. 3 months, 1 year, etc. In contrast, the Balance Sheet is like a photograph taken at an instant in time giving a pic ture of what the business owns and what the business owes at that moment in time. As we shall see it will always balance because what the business owns is financed by what the business owes. The Profit and Loss (PL account) One of the most important objectives of a business is to make a profit.The PL account shows the extent to which it has been successful in achieving this objective. Companies are expected to keep their PL accounts in certain formats. Typically the PL account will show the revenues received by a business and the costs involved in generating that revenue. In elemental terms Revenues Costs = Profits. A typical PL account will look like the following Case Study PL Account for Superior Traders as at 31/12/2004 You can witness out the gross profit of a business by deducting cost of sales from turnover ? 100,000 ? 50,000 = ? 0,000 You can find out the operating profit by deducting the expenses from the gross profit ? 50,000 ? 30,000 = ? 20,000 You may also come cro sswise the term net profit. Operating profit is earned from carrying out a businesses normal operations e. g. producing confectionery, or selling Christmas cards. Net profit takes account of other sources of income and expenditure that are not involved in normal operations e. g. interest paid on loans and interest received on having a positive balance in a bank account. Turnover is the value of sales made in a trading period.It is sometimes referred to as sale revenue and is calculated by the average price of items sold x the number sold. Cost of sales calculates the direct costs of manufacturing items, or buying in items to sell them on. Expenses are the overhead costs of running a business. These overheads cant be tied down to particular cost units. For example, it would be very difficult to calculate what fraction of the heating cost of a pen factory can be allocated to just one pen. The Balance Sheet is a statement showing the assets, liabilities and owners capital of a busin ess at a particular Downloaded from The Times 100 Edition oment in time, for example the year end. The Balance Sheet balances because the assets that a business possesses at a specific time have been financed either through the provision of capital by the owners or by the creation of external liabilities Value of assets = Value of Liabilities Value of Owners capital. There are a number of things that we can see from looking at a balance sheet, for example 1. The Net Assets of the business, i. e. the difference between the value of the assets and the value of the liabilities. A growth in net assets tends to indicate a growing business. Creditors due within one year are the sums that a business owes money to in the short period otherwise known as current liabilities. Net current assets is a measure of how solvent or liquid a business is. Many businesses need to have working capital. Working capital is calculated by subtracting current liabilities from current assets Working capital = Current assets Current liabilities Note that the figure for net current assets appear almost in the centre of a balance sheet, and is a figure that many people will look at first to check on the solvency of a business.Total assets current liabilities is a sum that appears in the balance sheet simply doing what the title suggests. Creditors due after more than one year shows the longer term liabilities of the bsiness. Total net assets is calculated by taking away all the liabilities (both current and long term) from all of the assets (both current and long term). Shareholders funds shows the value of the shareholders capital in the business. It will always be the same value as the total net assets and it balances the account. Downloaded from The Times 100 Edition.