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Profit
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Filename:BusinessStudiesOnline:Slide1
Calculating Profit and Loss Calculating Profit and Loss
Businessesreceivemoneyfromsellinggoodsandservices.TheyalsohavetopaycostsinordertomakethegoodsorprovidetheservicesProfitcanbecalculatedusingthefollowingformula:
Profit = Sales Revenue Total Cost
Filename:BusinessStudiesOnline:Slide2
Defining Profit and Loss Defining Profit and Loss
Iftheirsalesrevenueisgreaterthantheircosts,thentheyhavemadeaPROFIT
Revenue>Costs=Profit
Iftheirsalesrevenueislessthantheircosts,thentheyhavemadeaLOSS
Revenue
Filename:BusinessStudiesOnline:Slide3
Why Produce a Profit and Loss Account? Why Produce a Profit and Loss Account?
Itisalegalrequirement
Itsummarisesalltheyearstransactions
Itshowsthefinancialhealthofthebusiness.
Canbeusedtocomparetradethisyearwithtradelastyear.
Filename:BusinessStudiesOnline:Slide4
How can Profit and Loss be Calculated? How can Profit and Loss be Calculated?
BusinessesusuallycalculatetheirprofitorlossattheendoftheFINANCIALYEARTocalculateprofit,abusinessneedstoknowthevalueofSALES,theCOSTOFSALESandEXPENSES
Sales This is total amount of money a business receives from selling its goods and services.
It is sometimes called turnover or total revenue
Sales This is total amount of money a business receives from selling its goods and services.
It is sometimes called turnover or total revenue
Cost of Sales This is how much it costs to make the goods or provide the services.
Eg the amount paid for raw materials
Cost of Sales This is how much it costs to make the goods or provide the services.
Eg the amount paid for raw materials
Expenses These are the overheads (fixed costs) that have to be paid
Rent and Rates
Admin Cost
Heating and Light
Advertising
Expenses These are the overheads (fixed costs) that have to be paid
Rent and Rates
Admin Cost
Heating and Light
Advertising
Filename:BusinessStudiesOnline:Slide5
The Structure of a The Structure of a Profit and Loss Account Profit and Loss Account
ProfitandLossStatementForLouPole,yearending31.08.05
Sales 400,000LESSCostofsales
OpeningStock 100Purchases 100,000
100,100LessClosingStock 100
Grossprofit 300,000
Sales, the money from selling goods
Business Name and
Date
Calculated by subtracting cost of sales from sales
Value of stock owned at the
start of the year
Value of raw materials purchased
during the year
Value of stock left at the end
of the year. This will be next years OPENING
STOCK
100,000
Need to calculate how much it has cost to make the goods that have
been sold
Filename:BusinessStudiesOnline:Slide6
Grossprofit 300,000LESSExpenses
Salaries 75,000Rent 25,000Other 14,000TotalexpensesNetprofit 186,000
Expenses listed and a total
given
Calculated by subtracting
expenses from Gross Profit
114,000
Filename:BusinessStudiesOnline:Slide7
Computers and the Computers and the Profit and Loss Account Profit and Loss Account
Spreadsheetscanbeusedtocompileprofitandlossaccounts
Businessaccountspackagesautomaticallyproduceprofitandlossaccounts
Advantagesincludespeed,accuracy,instantaccesstoinformation
Problemsoccurifwrongdataentered,wrongcommandsentered,anydataislostorcorrupted