profit and loss accounts

• What is the purpose of profit and loss accounts?

  To gauge financial performance of businesses
• How do financial statements help businesses?

  They reveal the economic position and health
• What does a profit and loss account represent?

  A report card of business earnings and expenses
• What is the formula for calculating profit?

  Profit equals Revenue minus Costs
• What does the time frame of a profit and loss account refer to?

  It can be annual or monthly performance
• Why are profit and loss accounts crucial for businesses?

  They provide a snapshot of financial health
• What are the main components of a profit and loss account?

  • Revenue
  • Cost of Sales
  • Gross Profit
  • Expenses
  • Net Profit
• What does revenue represent in a profit and loss account?

  Income from sales of products or services
• What are cost of sales?

  Direct costs linked to production or delivery
• What is gross profit?

  Revenue minus cost of sales
• What do expenses encompass in a profit and loss account?

  Operational costs not tied to production
• What is net profit?

  Total profit after all costs and expenses
• If revenues total £100,000 and cost of sales is £20,000, what is the gross profit?

  £80,000
• If gross profit is £80,000 and expenses total £40,000, what is the net profit?

  £40,000
• What does a profit and loss account summarize?

  Company's revenues and costs over time
• What does a profit and loss account show?

  Profit or loss made over a period
• What is the significance of comparing profit and loss accounts over similar durations?

  • Spot trends
  • Measure growth or decline
  • Evaluate operational changes