Profit and Loss Accounts

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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


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