Unit 2 Business Resources
TASK 5 P5 P7 M3 D2
Interpretation of financial documents
In this task I will be explaining the key elements of the trading profit and loss account, as well as the
balance sheet for Sharma and Ryan’s business called SIGNature Ltd.
Trading account
A trading account is used by businesses in order to have a visual financial document regarding the
financial performance of the business. On a trading account there will be clear figures of income
generated from sales to the business annually, as well as the direct costs the business had to make in
order to make the sales figures present on the trading account. The term cost in regards to the
trading account is the amount of money the business has invested into creating their goods or
services appropriate for selling in the market. There will also be stock figures present which indicates
the balance of stock available in the business for sale from the start of the year and then brought
forward again at the end of the year. The trading account allows the business to make comparisons,
such as the value of sales to the customer in comparison to the value of sales at the cost price. This
allows businesses to be able to make judgments on the basis of the evidence they have on their
financial records such as the trading account of the business. Most importantly the trading account
aids the business to see the different between the sales value of their goods or services. On the
trading account this is found to be identified as turnover. The term sales turnover in business
accounting is how much the business receives from the sales of their goods or services. The business
can also see the cost of sales which is the gross profit. The final figure of the trading account comes
from the gross profit this is subtracted from the sales (turnover) which gives the gross profit figure
for the whole year.
Overall there are various purposes of using a trading account in a business. One of which is that
when the business decides to make changes in the business and can make be used as a way of
informing the decision makers whether or not decisions will be successful for the future, therefore
this will help the management team to measure the performance of the business at that stage in
order to make changes for the future success of the business. The fact that the trading account can
be used as a tool for safety against possibilities of loss means that the business can support itself in
terms of managing their costs more effectively and efficiently.
Profit and loss account
The profit and loss account is a continuation of the trading account, as it starts with the last figure of
the trading account which is generated from the gross profit of the business. The gross profit is the
final figure of the trading account comes from the gross profit this is subtracted from the sales
(turnover) which gives the gross profit figure for the whole year. It is important to have the correct
calculation for the gross profit of the trading account as this is the main method of achieving a
correct profit and loss account; this shows the link between the profit and loss account and the
trading account as they are almost interdependent in business accounting. The profit and loss
account is made up of different elements which includes;
Sales – the amount of sales the business has made from selling to customers over a specific time.
Sales returns – this is when a customer changes their mind about a their purchase and want a
refund, depending on what the return policy of the business is, as this could vary from business to
TASK 5 P5 P7 M3 D2
Interpretation of financial documents
In this task I will be explaining the key elements of the trading profit and loss account, as well as the
balance sheet for Sharma and Ryan’s business called SIGNature Ltd.
Trading account
A trading account is used by businesses in order to have a visual financial document regarding the
financial performance of the business. On a trading account there will be clear figures of income
generated from sales to the business annually, as well as the direct costs the business had to make in
order to make the sales figures present on the trading account. The term cost in regards to the
trading account is the amount of money the business has invested into creating their goods or
services appropriate for selling in the market. There will also be stock figures present which indicates
the balance of stock available in the business for sale from the start of the year and then brought
forward again at the end of the year. The trading account allows the business to make comparisons,
such as the value of sales to the customer in comparison to the value of sales at the cost price. This
allows businesses to be able to make judgments on the basis of the evidence they have on their
financial records such as the trading account of the business. Most importantly the trading account
aids the business to see the different between the sales value of their goods or services. On the
trading account this is found to be identified as turnover. The term sales turnover in business
accounting is how much the business receives from the sales of their goods or services. The business
can also see the cost of sales which is the gross profit. The final figure of the trading account comes
from the gross profit this is subtracted from the sales (turnover) which gives the gross profit figure
for the whole year.
Overall there are various purposes of using a trading account in a business. One of which is that
when the business decides to make changes in the business and can make be used as a way of
informing the decision makers whether or not decisions will be successful for the future, therefore
this will help the management team to measure the performance of the business at that stage in
order to make changes for the future success of the business. The fact that the trading account can
be used as a tool for safety against possibilities of loss means that the business can support itself in
terms of managing their costs more effectively and efficiently.
Profit and loss account
The profit and loss account is a continuation of the trading account, as it starts with the last figure of
the trading account which is generated from the gross profit of the business. The gross profit is the
final figure of the trading account comes from the gross profit this is subtracted from the sales
(turnover) which gives the gross profit figure for the whole year. It is important to have the correct
calculation for the gross profit of the trading account as this is the main method of achieving a
correct profit and loss account; this shows the link between the profit and loss account and the
trading account as they are almost interdependent in business accounting. The profit and loss
account is made up of different elements which includes;
Sales – the amount of sales the business has made from selling to customers over a specific time.
Sales returns – this is when a customer changes their mind about a their purchase and want a
refund, depending on what the return policy of the business is, as this could vary from business to
