Profit And Loss And Balance Sheets Page 10
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26ANALYSING PERFORMANCE
The Profit And Loss Account
Do not include in the profit and loss account:
.
Loans (either loans received or loan
The profit and loss account (also called
repayments), but do include interest
the ’income and expenditure account’ or
the ’trading account’) is the basic measure
.
VAT
of the financial performance of an
organisation. It tells you:
.
Setting Out A
What the value of the work done was
Profit And Loss Account
.
What the value of goods, labour and
services used to do that work was
The profit and loss account should show
.
the period covered, the sales (and other
Whether the value of the work done was
income), and the directly attributable cost
more or less than the value of what was
of the sales. For instance, a restaurant would
put in to it i.e. whether you made a profit
show the sales from meals and the cost of
or a loss.
the food purchased to make the meals.
The profit and loss account
does not
tell
you how much money the organisation
Sales
-
Cost of sales
received and how much money was spent
=
Gross profit
since at a given point in time money will
be owed by the organisation to its creditors
The profit and loss account should then list
and by debtors to the organisation.
all other items of expenditure.
Include in the profit and loss account:
Gross profit
-
Expenditure
.
All money paid out (wages incl. tax and
=
Net profit
national insurance, overheads, etc.)
.
All money received (sales, rents,
If the organisation has more than one
grants etc.)
division, then the profitability of each could
be measured by drawing up separate profit
.
All unpaid invoices generated in the
and loss accounts.
period covered
.
All unpaid invoices received in the
The profit and loss account is most useful
when
comparing
departments or periods
period covered
and so spotting trends, or assessing the
.
Depreciation of equipment
impact of changes made to the way the
organisation operates.
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Parent category: Business