Ali Ibrahim MA-17

What is profit and loss account Why profit and loss account is important to the business Components of profit and loss account Format

 A profit and loss account is a summary of business transactions for a given period - normally 12 months. The profit and loss account is the income statement, which shows the profit and loss of the business.

 Show whether a business has made a PROFIT or LOSS over a financial year. Describe how the profit or loss arose e.g. categorizing costs between cost of sales and operating costs. Helps identify whether the profit earned by the business is sustainable (profit quality)

 To understand factors which affect the profit. To know all the expenses and incomes It helps to make business decisions according to their expense and incomes

 Sales Direct Costs Gross Profit Indirect Costs Net Profit Taxation Director's Drawings Investment in Business

 Profit and loss account is essential for any business It gives an overall idea of the business trading To understand factors which affect the profit.