Rehman Mahmood

P5
Profit and Loss Account
The purpose of the profit and loss account is to:
 Show whether a business has made a Profit or Loss over a financial year.
 Describe and outline how the profit or loss arose, for example

A profit and loss account starts with the Trading Account and then takes into account
all the other expenses associated with the business. The trading account shows
the income from sales and the direct costs of making those sales. It includes the
balance of stocks at the start and end of the year.
Trading Account
The trading account covers all of the incomes from sales and the direct costs of
sales. The trading account includes:
 Sales - this is the revenue from sales
 Opening Stock - Stock of an item at the beginning of a new period.
 Purchases – the materials or resources purchased to produce the good
 less Closing Stock -
 Cost of Sales -
 Other Costs -
 Gross Profit -
Balance Sheet
A balance sheet is a statement of the total assets and liabilities of an organisation at
a particular date - usually the last date of an accounting period or the financial
year.

Definition of Assets:
 An asset is any right or thing that is owned by a business. Assets include land,
buildings, machinery, equipment and anything else a business owns that has a
value in money and can be converted to cash.
Definition of Liabilities:
 An item owned by the business that can be converted to cash.
Conclusion
 Based on the balance sheet and profit and loss account of Wansbeck Motors Ltd.
The business is in a good position where it is making a good net profit