Profit and loss account and balance sheet definitions
This fact sheet will give you a clear explanation of, the key elements of a trading profit, loss account and balance sheet.
Sales: Are the cost of the total of goods sold of the accounting year
Less cost of sales: The sales expenses, e.g. materials used to make the product
Gross profit: sales revenue minus costs of goods sold, (the cost of the supplies to produce the number of goods sold).
Less expenses: Expenses the business has used.
Net profit: Gross profit minus other expenses such as rent, bills, advertising.
Less interest: The expenses used to gain interest
Profit before taxation: The amount of profit that year gained before tax deductions.
Taxation: Cost of taxes
Profit after taxation: The profit gained after tax deductions, this is the profit you get to keep.
Dividend: The percentage of profit to give back to shareholders.
Retained profit: retained profit is money that is kept in the business rather than given out to a shareholder as a dividend. This is also an internal source of finance which you can use to invest in the business.
Fixed assets: Items of value owned by the business which are likely to stay in the business for more than a year, e.g. machinery.
Current assets: Items owned by a business that change In value on a regular basis, such as stock.
Stock: A portion of ownership in the business, the same as shares.
Debtors: Customers who have purchased business stock on credit, this means they are in debt to the business and they have to pay it back.
Cash at bank: The amount of money the business has in the…