P5. Interpret the contents of a trading and profit and loss account and balance
sheet for a selected company.
In this assignment I will write a report for Donut cupcakes. I will explain all de
components of their profit and loss account and balance sheet, but first I will briefly
explain what the purpose and use of the profit and loss account and the balance
sheet are.
With a balance sheet you can reveal the financial status of your business in a specific
point in time. In the balance sheet is shown what the business owns (assets) and
how much it owes (liabilities), and the amount that has been invested in the business
(equity).
With the profit and loss account you can reveal if a business has made profit or loss
over a financial year. The profit and loss account start with a header that includes the
name of the account, the company name and the ending date of the period. The
most typical time periods that are used might be a month, a quarter or a year. The
second part shows the income or revenue for the time period. And the third part is a
list of all the expenses of the business.
The costs of goods sold are the costs that a company makes by producing or buying
the goods. To get to know the COGS a calculation is done. The calculation for costs
of goods sold = opening stock + purchases – closing stock.
The overhead section of the profit and loss account is where all the expenses are
written. The total overhead are the expenses plus the depreciation. The calculation
for total overhead = expenses + depreciation.
The gross profit is calculated by subtracting the costs of goods sold from the sales
revenue. Then you also have the Net profit, there are 2 kinds. Net profit before tax
and net profit after tax. To get the net profit before tax, you need to subtract the total
expenses from the gross profit. To calculate the net profit after tax, you need to
subtract the tax from the net profit before tax.
There are 2 different kinds of incomes and expenditures. The Revenue Income,
Expenditure and the Capital Income, Expenditure. The Revenue Income is an
income that the business obtains on a day tot day basis (sales). Revenue
Expenditure are expenses that the business spent on a day to day basis (expenses).
Capital Income is capital that the business had obtained that stay in the business for
a longer amount of time (loans, owners capital). Lastly the Capital Expenditures are
capital that the business has spent that stay in the business for a longer amount of
time (fixed assets).
BTEC Nationals in Business, Unit 2 Business Resources, Cohort 2019-2020
1
, I will now explain all the different elements of the balance sheet.
o Fixed assets
The fixed assets are all the items that a business ownsand uses for more
that one year, for example buildings, equipment, vehicles etc. the fixed
assets on the balance sheet show you the costs you made by buying the
products. The total fixed assets are calculated by adding the value of each
fixed asset together.
o Current assets
Current assets are the results if a day to day business operations. Current
assets are the items which will be gone within a year. These are: stock,
debtors, cash in bank, cash in hand. The total current assets are calculated
by adding the value of each current asset together.
o Current liabilities
Current liabilities is cash which has a shorter period of time to be paid
back.
o Long term liabilities
Long term liabilities are any type of fund which is borrowed by the business
over a longer period of time.
o Net assets
Net assets are the difference between the total assets and the total
liabilities.
o Reserves and retained earnings
The reserves and retained earnings specifically show what equity consists
of, so total equity = reserves + retained profit.
Report:
The worthiness of this company is quit good. If you subtract the current liabilities from
the current assets you get the working capital which is £8.000. Then the net assets
are in total £62.000, this is done by subtracting all the liabilities from the assets. So
the total equity of the company is £62.000. Their total net profit is also £83.800,
which makes the company even more worthiness, because they have more money.
BTEC Nationals in Business, Unit 2 Business Resources, Cohort 2019-2020
2
sheet for a selected company.
In this assignment I will write a report for Donut cupcakes. I will explain all de
components of their profit and loss account and balance sheet, but first I will briefly
explain what the purpose and use of the profit and loss account and the balance
sheet are.
With a balance sheet you can reveal the financial status of your business in a specific
point in time. In the balance sheet is shown what the business owns (assets) and
how much it owes (liabilities), and the amount that has been invested in the business
(equity).
With the profit and loss account you can reveal if a business has made profit or loss
over a financial year. The profit and loss account start with a header that includes the
name of the account, the company name and the ending date of the period. The
most typical time periods that are used might be a month, a quarter or a year. The
second part shows the income or revenue for the time period. And the third part is a
list of all the expenses of the business.
The costs of goods sold are the costs that a company makes by producing or buying
the goods. To get to know the COGS a calculation is done. The calculation for costs
of goods sold = opening stock + purchases – closing stock.
The overhead section of the profit and loss account is where all the expenses are
written. The total overhead are the expenses plus the depreciation. The calculation
for total overhead = expenses + depreciation.
The gross profit is calculated by subtracting the costs of goods sold from the sales
revenue. Then you also have the Net profit, there are 2 kinds. Net profit before tax
and net profit after tax. To get the net profit before tax, you need to subtract the total
expenses from the gross profit. To calculate the net profit after tax, you need to
subtract the tax from the net profit before tax.
There are 2 different kinds of incomes and expenditures. The Revenue Income,
Expenditure and the Capital Income, Expenditure. The Revenue Income is an
income that the business obtains on a day tot day basis (sales). Revenue
Expenditure are expenses that the business spent on a day to day basis (expenses).
Capital Income is capital that the business had obtained that stay in the business for
a longer amount of time (loans, owners capital). Lastly the Capital Expenditures are
capital that the business has spent that stay in the business for a longer amount of
time (fixed assets).
BTEC Nationals in Business, Unit 2 Business Resources, Cohort 2019-2020
1
, I will now explain all the different elements of the balance sheet.
o Fixed assets
The fixed assets are all the items that a business ownsand uses for more
that one year, for example buildings, equipment, vehicles etc. the fixed
assets on the balance sheet show you the costs you made by buying the
products. The total fixed assets are calculated by adding the value of each
fixed asset together.
o Current assets
Current assets are the results if a day to day business operations. Current
assets are the items which will be gone within a year. These are: stock,
debtors, cash in bank, cash in hand. The total current assets are calculated
by adding the value of each current asset together.
o Current liabilities
Current liabilities is cash which has a shorter period of time to be paid
back.
o Long term liabilities
Long term liabilities are any type of fund which is borrowed by the business
over a longer period of time.
o Net assets
Net assets are the difference between the total assets and the total
liabilities.
o Reserves and retained earnings
The reserves and retained earnings specifically show what equity consists
of, so total equity = reserves + retained profit.
Report:
The worthiness of this company is quit good. If you subtract the current liabilities from
the current assets you get the working capital which is £8.000. Then the net assets
are in total £62.000, this is done by subtracting all the liabilities from the assets. So
the total equity of the company is £62.000. Their total net profit is also £83.800,
which makes the company even more worthiness, because they have more money.
BTEC Nationals in Business, Unit 2 Business Resources, Cohort 2019-2020
2
