Statement of Profit or Loss (DP IB Business Management)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
An Introduction to Financial Accounts
Financial accounts detail the financial performance of a business over a trading period
The two main financial accounts are
The Statement of Profit or Loss
The Statement of Financial Position
Public Limited Companies (PLCs) have to produce financial reports annually
Annual reports must comply with International Financial Reporting Standards (IFRS) allowing straightforward comparisons of performance over time and between companies
Examiner Tips and Tricks
The two main financial accounts sometimes go by different titles, though the titles given above are those that will be given in your examination.
The Statement of Profit or Loss is also widely known as the Profit and Loss Account or an Income Statement
The Statement of Financial Position is often referred to as the Balance Sheet.
The Statement of Profit or Loss
The Statement of Profit or Loss shows the income and expenditure of a business over a period of time - usually a year - and calculates the amount of profit made
It is divided into three parts
The trading account
The profit and loss account
The appropriation account
Diagram: the statement of profit or loss
The trading account
The trading account is where the cost of sales is deducted from sales revenue to calculate the gross profit
In 2022 Head to Toe Wellbeing Limited's sales revenue was $124.65m and its cost of sales were $18.92m
The gross profit for the period was therefore
The profit & loss account
The profit and loss account deducts a series of expenses to determine the profit for the period
In 2022 gross profit was $105.73m and expenses were $39.87m
The profit before interest and tax was therefore
The business also paid $2.01m interest
The profit before tax was therefore
The business also paid $5.47m tax
The profit for the period was therefore
The appropriations account
The appropriations account shows how profits are distributed for the period
In 2022 Head to Toe Wellbeing Limited distributed $13.75m to shareholders as dividends
$44.63m was therefore retained as profit
Examiner Tips and Tricks
For non-profit organisations some amendments are made to the standard layout of the Statement of Profit or Loss
The word 'profit' is replaced by 'surplus'
Non-profit organisations are usually exempted from the payment of corporation tax so this is not normally recorded or is recorded as a 0 value
How Stakeholders use the Profit & Loss Account
The Statement of Profit or Loss is a very useful source of information for stakeholders to evaluate the performance of a business
How Stakeholders use The Statement of Profit or Loss
Shareholders | Employees |
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Managers & Directors | Suppliers |
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Government | Local Community |
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