Profit And Loss And Balance Sheets Page 17

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PROFIT AND LOSS
CALCULATIONS
Exercise 1 : Debtor And Creditors
The first step in drawing up a profit and loss account for a particular period is to work out
the
value of sales
in that period. Costs and bills incurred in other periods are excluded as
are advance payments for future work.
When a business makes use of goods and services in a trading period but has not yet paid
for them, the value of these goods (which they have used to add value to their products)
must be deducted from the value of any sales made. People or organisations you owe
money to are known as
creditors.
When a business has sold goods or services but not yet received payment, then the value of
these goods can be added to any sales made. People or organisations that owe you money
are known as
debtors.
Calculating the
value of sales
is complicated by the fact that not all payments, either from
the business to its
creditors
or to the business from its debtors, will have been made in a
trading or accounting period. Some invoices for work done will be sent out at the end of
the month and will not yet have been paid. Some bills will have been received for goods
or services used to run the business but payment will not have been made.
Value of sales (turnover)
=
Value of sales
+
Debtors
-
Creditors
P 229

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Parent category: Business