Sections of a profit and loss account.
1. Income
2. Expenses
Sections of a balance sheet
1. Fixed assets
2. Current assets
3. Current liabilities
4. Long term liabilities
5. Capital employed
a. Capital
b. Opening balance
c. Net profit
d. Drawings
Profit and loss account allows us to calculate our net profit.
Balance sheet will summarise our assets and liabilities. If done correctly the balance will
equate to the level of capital invested as at that particular date.
TRADING BUSINESS OR PROFESSIONAL BUSINESS?
A professional business will start its profit and loss account by listing its income from
professional charges (profit costs) and other sources.
A trading business will first have to work out its gross profit.
Drawings appear on the capital employed section of the balance sheet.
Assets are found at the start of the balance sheet.
Current assets will be placed on the balance sheet in the order of increasing liquidity.
WIP is a current asset and will appear on the balance sheet.
Bad debts will be an added expense in the profit and loss account. The debtors figure will be
adjusted (less) under assets for the balance sheet.
Doubtful debts will be added to the figure for bad debts under expenses in the profit and
loss account. The debtors figure will be adjusted ‘less’ the provision for doubtful debts on
the balance sheet.
Depreciation is an expense on the profit and loss account. Accumulated depreciation
appears on the balance sheet.
Partnership accounts.
Additional profit section on the profit and loss account. Capital section on the balance sheet.
Balance sheet will also have a note regarding movements on current accounts.
Each partner needs their own capital account.
1. Income
2. Expenses
Sections of a balance sheet
1. Fixed assets
2. Current assets
3. Current liabilities
4. Long term liabilities
5. Capital employed
a. Capital
b. Opening balance
c. Net profit
d. Drawings
Profit and loss account allows us to calculate our net profit.
Balance sheet will summarise our assets and liabilities. If done correctly the balance will
equate to the level of capital invested as at that particular date.
TRADING BUSINESS OR PROFESSIONAL BUSINESS?
A professional business will start its profit and loss account by listing its income from
professional charges (profit costs) and other sources.
A trading business will first have to work out its gross profit.
Drawings appear on the capital employed section of the balance sheet.
Assets are found at the start of the balance sheet.
Current assets will be placed on the balance sheet in the order of increasing liquidity.
WIP is a current asset and will appear on the balance sheet.
Bad debts will be an added expense in the profit and loss account. The debtors figure will be
adjusted (less) under assets for the balance sheet.
Doubtful debts will be added to the figure for bad debts under expenses in the profit and
loss account. The debtors figure will be adjusted ‘less’ the provision for doubtful debts on
the balance sheet.
Depreciation is an expense on the profit and loss account. Accumulated depreciation
appears on the balance sheet.
Partnership accounts.
Additional profit section on the profit and loss account. Capital section on the balance sheet.
Balance sheet will also have a note regarding movements on current accounts.
Each partner needs their own capital account.
