Financial Statements of Limited

Companies - Profit and Loss

Account

Financial Statements of Limited

Companies - Profit and Loss

Account

 learning objectives

what is profit?

the main elements of the profit and loss account

levels of profit within the profit and loss account a profit and loss account format

elements of the profit and loss account

other profit and loss account disclosure

Session Summary (1) Session Summary (1)

 

reconciliation of movement in shareholders’ funds

format 1 profit and loss account

profit and loss and the balance sheet profit comparison from the use of various stockvaluation methods

stock value comparison from the use of various stock valuation methods

profit and loss and cash flow

Session Summary (2) Session Summary (2)

 

describe what is meant by profit (or loss)

outline the structure of the profit and loss account(income statement) of a limited company

classify the categories of income and expenditure that comprise the profit and loss account

appreciate the alternative profit and loss account formats

Learning Objectives (1) Learning Objectives (1)

 

prepare a profit and loss account

explain the links between the profit and loss accountand the balance sheet, particularly with regard to

the valuation of fixed assets and depreciation

stock and cost of sales

debtors and the doubtful debt provision

explain the links between the profit and loss accountand cash flow

appreciate the subjective aspects of profit measurement

Learning Objectives (2) Learning Objectives (2)

 

The profit (or loss) of an entity may be considered fromtwo perspectives:

by considering the change in wealth between the startand end of an accounting period:

total assets (TA) - total liabilities (TL) = equity (E) + profit (P)  P = TA - TL - E  

 

  

What is Profit? (1) What is Profit? (1)

 

by considering the summarisation of all the trading and non-trading transactions through

deducting total costs from total revenues (sales) that have occurred during an accounting period:

profit (P) = total revenue (TR) – total costs (TC)

P = TR - TC

   

  

What is Profit? (2) What is Profit? (2)

 

The Main Elements of the Profit and Loss

Account

The Main Elements of the Profit and Loss

Account

 

Levels of Profit within the Profit and Loss

Account

Levels of Profit within the Profit and Loss

Account

 

A Profit and Loss Account Format

A Profit and Loss Account Format

 

Elements of the Profit and Loss

Account

Elements of the Profit and Loss

Account

extraordinary items

exceptional items

earnings per share

reconciliation of movement in shareholders’ funds  

Other Profit and Loss Account Disclosure

Other Profit and Loss Account Disclosure

 

Reconciliation of Movement in

Shareholders’ Funds

Reconciliation of Movement in

Shareholders’ Funds

 

Format 1 Profit and Loss

Account

Format 1 Profit and Loss

Account

•

the profit and loss account is closely linked with the balance sheet in two ways:

they both reflect the change in wealth of

the business

most transactions are reflected once in both the

profit and loss account and the balance sheet  valuation of the various items within the balance sheetis in accordance with the Companies Acts 1985/1989, accounting concepts and standards

 

Profit and Loss and the Balance Sheet slide 1

Profit and Loss and the Balance Sheet slide 1

Profit and Loss and the Balance Sheet (1)

Profit and Loss and the Balance Sheet (1)

valuation of assets has a significant impact on the levelof profit (or loss) earned by a business during an accounting period through:  

depreciation and fixed assets 

cost of sales and stocks

bad and doubtful debts and trade debtors

there are limitations to the profit and loss account, which like the balance sheet is an historical document, primarily due to the impact on costs of the use of alternative methods of valuation of assets and liabilities

 

Profit and Loss and the Balance Sheet slide 2

Profit and Loss and the Balance Sheet slide 2

Profit and Loss and the Balance Sheet (2)

Profit and Loss and the Balance Sheet (2)

 

  

Profit Comparison from the Use of Various

Stock Valuation Methods

Profit Comparison from the Use of Various

Stock Valuation Methods

 

  

Stock Value Comparison from the Use of Various Stock

Valuation Methods

Stock Value Comparison from the Use of Various Stock

Valuation Methods

the profit (or loss) earned during an accounting periodis not the same as the cash flow generated during the period

the links between the two measures may bequantified and reconciled

 

Profit and Loss and Cash Flow

Profit and Loss and Cash Flow