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Learning objectives
· Why do businesses record their profit or loss?
· What is a financial year?
· What is a profit and loss account?
· What parts make up a profit and loss account?
· How are the figures calculated in a profit and
loss account?
* of 24 © Boardworks Ltd 2006
2007…read more

Slide 3

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Profit and loss accounts
Every business ­ however small or large ­ aims to make
a profit. For a business to be able to calculate whether it
has made a profit, it must keep a profit and loss account.
A profit and loss account
summarizes all of a business's
revenue and costs over a
period of time, usually a year.
The business then uses the
figures in it to work out how
much profit or loss it made.
Why is producing a profit and loss account
useful for a business?
* of 24 © Boardworks Ltd 2007…read more

Slide 4

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Profit and loss
A business produces a profit and loss account because:
· it is a legal requirement
· it sums up the performance of
a business to its stakeholders
· it can be compared with the
previous year's performance
· investors or lenders need to
see one before making deals
· it can help to forecast future
profits and helps with planning.
How could ICT help a business to prepare its
profit and loss account?
* of 24 © Boardworks Ltd 2007…read more

Slide 5

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The financial year
Businesses are legally required by the government to produce
annual profit and loss accounts at the end of each financial
year for the Inland Revenue.
Do you know when the financial
year begins and ends in the UK?
The UK's financial year runs
from 6 April to 5 April.
At the end of each financial year private limited (Ltd) and
public limited (PLC) companies must produce audited
annual accounts for the Inland Revenue ­ for it to calculate
how much tax they owe.
* of 24 © Boardworks Ltd 2007…read more

Slide 6

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Profit and loss account
A profit and loss account can be presented in different ways,
but many businesses divide it into three distinct sections:
· the trading account
· the profit and loss account
· the appropriation account.
It can be recorded by hand into
an accounts ledger, or entered
into a computer spreadsheet or
accounts package.
* of 24 © Boardworks Ltd 2007…read more

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