Financial statements
Introduction
In this assignment I am going to be looking at the financial statements used by a commercial business. I will be explaining the key compartment parts of the income statement of a commercial business and making a clear distinction between gross and net profit. I am going to be covering both the trading account and the profit and loss account and explain the difference between the two.
I am then going to give examples of the key component parts of the statement of financial position of a commercial company. I am going to cover the balance sheet and provide an example along with a full explanation of all the financial terms used.
Financial statements
Financial statements are a collection of reports that outline …show more content…
They are usually split into two accounts, the trading account which is at the top and profit and loss account which is underneath.
Trading account
The trading account shows the turnover, cost of sales and gross profit. The turnover of a business is the total amount of money made from sales. The costs of sales is the amount of money a business paid their supplier for the goods they wish to resell to customers. The price goods are sold to customers for is called sales. To find out the gross profit, the costs of sales needs to be subtracted from the turnover.
For example, a shop selling candles would pay their supplier £3 per candle. The business would buy 70,000 candles a year which would come to £210,000. The cost of sales for that year would be £210,000. They might decide to resell the candles to customer for £8 per candle. If the business managed to sell all 70,000 candles, then their turnover would be £560,000. To calculate the gross profit they would take the costs of sales (£210,000) away from the turnover (560,000) which would be £350,000.
The trading account would be set up as shown below:
Preets Candle Company trading account for year ending 30th September …show more content…
The gross profit is the profit made before taking away any non-product expenses where as the net profit is the final profit after taking off the non-product expenses. If a businesses gross profit is high, it does not necessarily mean that they are making a profit. If the business is not receiving as much as their non-product expenses, then their net profit would be negative.
The Statement of Financial Position
The statement of financial position which is also known as the balance sheet shows a business 's assets and liabilities for a specific day and gives a summary of the business 's overall financial position. Assets are things that a business owns such as equipment or vehicles or could also be money that is owed to them at that time. Businesses need assets to receive money. To buy the assets they can us internal sources which is referred to as equity or external sources which are the liabilities of a
Introduction
In this assignment I am going to be looking at the financial statements used by a commercial business. I will be explaining the key compartment parts of the income statement of a commercial business and making a clear distinction between gross and net profit. I am going to be covering both the trading account and the profit and loss account and explain the difference between the two.
I am then going to give examples of the key component parts of the statement of financial position of a commercial company. I am going to cover the balance sheet and provide an example along with a full explanation of all the financial terms used.
Financial statements
Financial statements are a collection of reports that outline …show more content…
They are usually split into two accounts, the trading account which is at the top and profit and loss account which is underneath.
Trading account
The trading account shows the turnover, cost of sales and gross profit. The turnover of a business is the total amount of money made from sales. The costs of sales is the amount of money a business paid their supplier for the goods they wish to resell to customers. The price goods are sold to customers for is called sales. To find out the gross profit, the costs of sales needs to be subtracted from the turnover.
For example, a shop selling candles would pay their supplier £3 per candle. The business would buy 70,000 candles a year which would come to £210,000. The cost of sales for that year would be £210,000. They might decide to resell the candles to customer for £8 per candle. If the business managed to sell all 70,000 candles, then their turnover would be £560,000. To calculate the gross profit they would take the costs of sales (£210,000) away from the turnover (560,000) which would be £350,000.
The trading account would be set up as shown below:
Preets Candle Company trading account for year ending 30th September …show more content…
The gross profit is the profit made before taking away any non-product expenses where as the net profit is the final profit after taking off the non-product expenses. If a businesses gross profit is high, it does not necessarily mean that they are making a profit. If the business is not receiving as much as their non-product expenses, then their net profit would be negative.
The Statement of Financial Position
The statement of financial position which is also known as the balance sheet shows a business 's assets and liabilities for a specific day and gives a summary of the business 's overall financial position. Assets are things that a business owns such as equipment or vehicles or could also be money that is owed to them at that time. Businesses need assets to receive money. To buy the assets they can us internal sources which is referred to as equity or external sources which are the liabilities of a