A business keeps various types of financial record to monitor its performance and ensure that taxes are paid. These include cash flow statements, profit and loss accounts and a balance sheet.
Trading, profit and loss account
A trading, profit and loss account shows the business's financial performance over a given time period, eg one year.
Sample trading, profit and loss account
Sales revenue £80,000 Less costs of sales £50,000 Gross profit £30,000 Less other expenses £20,000 Net profit £10,000
The trading account shows the business has made a gross profit of £30,000 before taking into account other expenses such as overheads.
The profit and loss account shows a net profit of £10,000 has been made.
A balance sheet shows the value of a business on a particular date. A balance sheet shows what the business owns and owes (its assets and its liabilities).
Fixed assets £150,000 Current assets £25,000 Current liabilities £100,000 Net assets employed £75,000 Capital and reserves £75,000