Business - 3.4 Statements of Profit Loss

Trading account

difference between the sles revenue and the cost of sales (CoGS: cost of goods sold) to reveal the gross profit

• sales revenue - cost of sales (CoGS) = gross profit

Profit and Loss

real amount of profit after overheads, tax, interest and other expenses/ income, come into play (either added or subtracted); show calculations

Appropriation account

shows where the “remaining money” actually ends up is it kept or redistributed to investors (dividends)

Cost of Goods Sold (CoGS)

COGS = Opening Stock + Purchases - Closing stock

• Stock = raw materials or components; work in progress finished goods

1. Opening Stock: amount of stock at the beginning of a new inventory/accounting period.

2. Purchases: amount of stock bought during an accounting period.

3. Closing Stock: amount of stock remaining at the end of an inventory/accounting period.

Stock

• raw materials or components; work in progress finished goods

Opening Stock

amount of stock at the beginning of a new inventory/accounting period

Purchases

amount of stock bought during an accounting period

Closing Stocks

amount of stock remaining at the end of an inventory/accounting period

Sales Revenue

Revenue from sales; (price x quantity sold)

Gross Profit

deducting cost of sales from sales revenue to find gross profit

Overhead Expenses

indirect payments, utilities (electricity, water, gas, air conditioning, internet)

Profit Before Interest or Tax

difference between gross profit and expenses

• Gross profit - expenses

Interest

fee a business pays a lender (creditor) to borrow money

Tax

government revenue, spent on public services

Profit for Period

Profit after tax and interest

• Profit before tax and interest - corporation tax and interest

Dividends

money paid to shareholders

Retained Profit

profit for period - dividends = retained profit

Profit Loss Account Example

How to improve gross profit

• Cheaper suppliers

  + Decreased costs

  - However, quality may decrease

• Increase selling price $$$

  + Higher revenue

  - If PED is elastic, demand will drop

• Better marketing strategies

  + Increased exposure

  - Higher costs