Profit and Loss Account - Coursework Example

Only on StudentShare

Extract of sample
Profit and Loss Account

The indirect costs (those that cannot be directly attributed to generating revenue) are then deducted from the gross profit to give a net income figure. A single profit and loss account provides information about how much it costs to generate sales, and how much room for manoeuvre the business has before an increase in the costs of generating those sales causes the business to become unviable (e.g. raw materials may increase to a point where it is no longer financially viable to make a particular product). This can be shown by considering the gross profit as a percentage of the sales revenue. The same can be applied to the indirect expenses of the business. Monitoring these costs can indicate when a particular supplier is becoming too expensive, and the business should look for another supplier who offers better value for money. The net profit figure, as a percentage of the sales revenue indicates the total effect of all costs relating to the business and whether the business continues to be viable and generates profits for the owner (in this case Peter).Peter’s profit and loss account indicates that he rents property rather than owning his own factory or workshop. The depreciation figure is not broken down, which means that the type of assets that are subject to depreciation cannot be seen, although the motor expenses indicate that the business probably owns some form of motor vehicle. ...
Download paper


A profit and loss account provides an account of the income and outgoings of the business during an accounting period.The income of a business is usually sales revenue,with the direct costs of generating that income deducted from the total …
Author : zgerlach

Related Essays

Accounting as the Important Function of Every Business Organisation (Halfords company)
Accounting’s main or primary purpose is to identify the activities of the business organisation, recording and measuring the transactions of the business and communicating the financial information to all the interested persons like the shareholders, investors, creditors, management, employees, government etc. The financial information generated from accounting in form of financial statements helps managerial decision making and other important investment decisions. Accounting is an important function of every business organisation. Accounting has various purposes and objectives. Among the...
4 pages (1004 words) Essay
Financial Reporting Research
When making this decision, IAS 8.11 requires the management to show the definitions, recognition procedures, and dimension concepts for assets, incomes, liabilities, expenses and liabilities in the accounting Framework. A good financial statement is one that is understandable to every stakeholder of the company with minimum difficulties, thus financial statements should be simple and easy to understand. Two it should be reliable in that potential investors can rely on it to make decisions. Three it should be easy to compare with other financial statements in the market. Last but not least...
6 pages (1506 words) Essay
Introduction to Business Accounting
Financial ratio analysis is one of the most commonly used method for evaluating and comparing company's performance over a period of time however it has major limitations which undermine its use and value of results produced by it (Moyer and McGuigan 2012). Firstly, the financial data that is used for calculating different ratios is historic that implies that the financial ratio analysis provides findings regarding the company's past performance which may not have relevance to the business's current position. This restricts analysts from using the results of the financial ratio analysis for...
5 pages (1255 words) Essay
Be able to evaluate the financial performance of a business
Investors often use financial analyses for making appropriate investment decisions. Financial Institutions: In order to arrive at suitable decisions regarding granting a company with extended debt securities like debentures or long-term bank loan, or new working capital etc, financial institutions will need to verify the financial statements of companies. Government Entities: They need to verify these statements to determine the correctness and accuracy of taxes and further duties stated and paid by a business. Such statements will also help them in ensuring that the company is...
7 pages (1757 words) Assignment
case study
However, profit and loss account does not provide information about future. (1.b) Profit and Loss Account Review: When looking at the profit and loss account of the Modern Furniture of both years, there are some items that are worth considering for decision making. The gross profit has declined by 10.75% from 2011. The major reason is the increase in the inventory cost. The other important thing to notice is that, there is a sharp decline of 5.8% in the net profit from last year which clearly indicates that there are no effective controls over the cost. Specially, salaries, maintenance and...
4 pages (1004 words) Assignment
Introduction to Accounting - AAS1
There is a significant relationship exist between revenue and expense. The company incurs expenses to generate revenue so, the matching principle states that all the expenses that were incurred in a period to generate revenue should be subtracted from the revenue of the same period for the purpose of computation of the net income (Nikolai, et al., 2010). Going Concern Concept Going concern is also a key concept accounting that assumes that the company will continue its operation for a foreseeable future. This important assumption is made because the amount of time, the company will continue...
4 pages (1004 words) Essay
ATC-47 Ethical Dilemma - Terry Bailey Case
The income of the company would increase by the total amount of line cost charges less the amount of depreciation claimed for that year. Since the line cost charges was being expensed as and when incurred until the previous year, the income of this year compared to the previous years would be higher.
In the company’s balance sheet, the capitalized cost would be shown on the asset side as a Fixed Asset so that it could be depreciated over the next few years. The Profit and Loss account balance would naturally be higher than it should have been.
2 pages (502 words) Case Study
Got a tricky question? Receive an answer from students like you! Try us!