1a. Profit and Loss account
A profit and loss account is intended to show a business its income and expenditures and calculate the company’s net profit or loss based upon the difference between those figures. It is extremely useful in determining past performance and to try and predict future results. It enables a business to see what changes could make to improve on its profit. It also give enough information to help a business to set targets.
We can learn more from the statement. As it shows the expenses so we can see clearly see where the largest expenses are, this could then be used to identify the immediate areas to focus on when trying to save on expenses.
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1B) The Purpose of a Profit and Loss account
From looking at the statement I have found a few reasons for concern, The first I would like to point out is that even if the business is making a profit the margin from 2011 to 2012 in far less and has decreased dramatically. This could mean less money to reinvest into the business. If the same decrease was to happen in 2013 the business will make no profit and will lose money. Another cause for
A. Balance sheet.
A balance sheet is a summary of the value of all assets, liabilities and Ownership equity for an organisation on a specific date.
The balance sheet is useful when looked at alongside the profit and loss figures.This give you a wider picture of the business For example, if you borrowed lots in one particular year, but had made a profit, the profit would show on your profit and loss accounts, but what you owed would only be apparent on the balance sheet. It also helps in understanding the value of the business assets