Profit and Loss Accounts

What are Financial Statements?

A business has to record all transactions of money going into and out of the business. These transactions form a numerical history of the business and are summarised in the financial statements. These statements show whether the business has made a profit or a loss and how much it is worth.

The two financial statements are:

• Profit and Loss Accounts

• Balance Sheets

Purpose of financial statements

• Keeps the business and other stakeholders informed about the businesses performance

• Identifies whether the business is making a profit or a loss

• Shows how much the business is worth

• Tracks the flow of cash into and out of the business

• Informs managers on the payment of suppliers and receipts from customers

• Helps inform future decisions

Profit and Loss Account

Shows a summary of a firm’s trading expenses in a given time period (normally a…