Profit and Loss Account

Profit and Loss Account • Calculates the profit / loss made by a business in the last 12 months. • Why is this important?

Pete’s Pizza Parlour Pete runs a takeaway pizza parlour in Brentwood. He has been trading for 12 months and is drawing up his profit and loss account. How will he work out how much money he has taken over the 12 months? Sales = price x number sold

Pete’s takings are as follows; 6,000 x pizzas at £7 each. 10,000 x chips at £1.50 each 8,000 x garlic bread at £4 each What is his sales figure? 42,000 15,000 32,000 £89,000

Cost of Goods Sold Next we need to work out how much it has cost him to buy his raw materials to make these goods. Cost of goods sold = opening stock + purchases – closing stock Has Pete any opening stock?

£6,000 £2,800 £1,200 £ 600 TOTAL = £10,600 Pete’s purchases are as follows; Prepared dough 2,000 packets at £3 each Frozen chips 280 boxes at £10 each Toppings and tomato base £1200 Sundries £600

Gross Profit What is Pete’s gross profit? Gross profit = sales – COGS 89,000 – 10,600 = £78,400.

Expenses What else will we have to take off Pete’s profit figure? Overheads / expenses – the general costs of running the business. For example.....

Pete’s expenses are as follows; Wages £10,000 Rent £12,000 Advertising £ 2,500 Insurance £ 1,000 Vehicle £ 5,000 Telephone £ 3,000 Utilities £ 5,000 TOTAL EXPENSES ? £38,500

Net Profit So, what is Pete’s net profit? Net profit = GP – expenses NP = 78,400 – 38,500 = £39,900

Net Profit Now that Pete has made a profit......... What can he do with it???? • As a sole trader • As a partnership • As a limited company • As a PLC ?

Net Profit But who have we forgotten??? Someone else will want a slice of Pete’s profit, WHO ??

Profit and Loss Account