Notes on Profit and Loss statements

Profit and Loss Account In most businesses profit is the driving force behind the decision process. The amount of profit made by the firm is often an indicator of performance. The level of profit is measured / calculated through the profit - loss account. The profit and loss account illustrates all the business transactions over the time period (usually one year). The profit - loss account is divided into 3 sections. These sections are combined to create …

…or expenses. These may include interest - paid or received - tax, extraordinary items (profits from selling assets or parts of the company) and so on. The final retained profit figure is the one that goes to the balance sheet as a source of funds for the company to use. This retained profit may be used to buy fixed assets (machinery, equipment etc.) or it may remain as current assets (cash in the bank perhaps).