profit and loss accounts

• Who are the stakeholders interested in business accounts?

  • Directors
  • Workers
  • Managers
  • Shareholders/investors
  • Customers
  • Suppliers
  • Banks
  • Government
  • Competitors
• What do directors want from business accounts?

  To measure past planning success and aid decisions
• Why do workers care about business accounts?

  To see if the business is successful for job security
• What do managers want to know from business accounts?

  Business success, job security, and bonus eligibility
• Why are shareholders/investors interested in business accounts?

  To assess business success and influence share value
• What do customers want to know from business accounts?

  About the business's survival and pricing strategies
• Why do suppliers care about business accounts?

  To assess if the business can pay its trade credit
• What do banks want to know from business accounts?

  Whether the business can pay its loans or overdraft
• Why is the government interested in business accounts?

  To determine tax collection and assess profit levels
• What do competitors want from business accounts?

  To make comparisons and aid planning strategies
• What is a profit and loss account?

  A financial statement showing revenue and costs
• What is another name for profit and loss accounts?

  Income statements
• What is the formula for calculating gross profit?

  Total Revenue – Costs of Goods Sold
• How is gross profit margin calculated?

  Gross Profit × 100 / Sales
• What is net profit?

  The final profit after all costs are paid
• How is net profit calculated?

  Gross Profit - Expenses
• How is net profit margin calculated?

  Net Profit × 100 / Sales
• What are the reasons for changes in gross or net profit margin?

  • Changes in sales revenue
  • Changes in costs of goods sold
  • Changes in expenses
• What are the ways to increase profit?

  • Decrease price
  • Increase price charged
  • Reduce costs
  • Increase marketing
• What is a potential downside of decreasing prices to increase profit?

  It may look like poor quality and lower profits
• What is a potential downside of increasing prices to increase profit?

  It may lose customers unwilling to pay more
• What is a potential downside of reducing costs to increase profit?

  Quality of service may fall, losing customers
• What is a potential downside of increasing marketing to increase profit?

  It will increase costs
• What are the components of financial performance?

  • Income
  • Costs
  • Finance costs
  • Input costs
  • Machinery & labour costs
  • Overheads
• Profit

  The difference between the total revenue of a business and the total costs of a business, when revenue is greater than cost. It is important in being precise in using this term: stating “money made” can be confusing.