Accounting - Business Revision Notes
© irevise.com 2016.
All revision notes have been produced by mockness ltd for irevise.com.
- The profit and loss account calculates how much profit or loss a business makes in a year. The net profit of a company is its gross profit (money made) minus expenses.
- Cost of Sales 30,000
Gross Profit 60,000
- Expenses 40,000
(heat, wages etc)
Net Profit 20,000
- Decision Making: the size of the net profit can help the manager decide if the business can afford to give out a dividend to its shareholders. It can also indicate if the business will have to borrow and how much if it wishes to expand.
- Costs may be too high: if the business has a low gross profit this could indicate to the manager that the business may be paying too much for raw supplies. The manager can then look for a cheaper supplier.
- Incorrect Pricing: a low gross profit can also indicate the business needs to start charging more for its product. This would lead to an increase in profits if the quality of the product matches its price.
- Expenses may be too high: a low net profit can indicate that the business’s expenses are too high. The manager can then plan where cutbacks to expenses can be made to increase profits.
- The purpose of the Balance Sheet is to provide the financial position of the business. It shows the value of assets and l...