Financial Statements of Limited Companies - Profit and Loss Account

1. Financial Statements of Limited Companies - Profit and Loss Account

2. learning objectiveswhat is profit? the main elements of the profit and loss accountlevels of profit within the profit and loss accounta profit and loss account formatelements of the profit and loss accountother profit and loss account disclosure Session Summary (1)

3. reconciliation of movement in shareholders’ funds format 1 profit and loss accountprofit and loss and the balance sheetprofit comparison from the use of various stockvaluation methodsstock value comparison from the use of various stock valuation methodsprofit and loss and cash flow Session Summary (2)

4. describe what is meant by profit (or loss)outline the structure of the profit and loss account(income statement) of a limited companyclassify the categories of income and expenditure that comprise the profit and loss accountappreciate the alternative profit and loss account formats Learning Objectives (1)

5. prepare a profit and loss accountexplain 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 provisionexplain the links between the profit and loss accountand cash flowappreciate the subjective aspects of profit measurement Learning Objectives (2)

6. 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)

7. by considering the summarisation of all the trading and non-trading transactions throughdeducting 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)

8. The Main Elements of the Profit and Loss Account

9. Levels of Profit within the Profit and Loss Account

10. A Profit and Loss Account Format

11. Elements of the Profit and Loss Account

12. extraordinary itemsexceptional itemsearnings per sharereconciliation of movement in shareholders’ funds Other Profit and Loss Account Disclosure

13. Reconciliation of Movement in Shareholders’ Funds

14. Format 1 Profit and Loss Account

15. 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 (1)

16. 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 stocksbad 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 (2)

17. Profit Comparison from the Use of Various Stock Valuation Methods

18. Stock Value Comparison from the Use of Various Stock Valuation Methods

19. the profit (or loss) earned during an accounting periodis not the same as the cash flow generated during the periodthe links between the two measures may bequantified and reconciled Profit and Loss and Cash Flow