Unit 2 - P5

Topics: Generally Accepted Accounting Principles, Balance sheet, Inventory Pages: 3 (1209 words) Published: May 24, 2013
Interpret the contents of a trading profit and loss account and balance sheet for a selected company. Wansbeck Motors Ltd is a limited company, there for have to submit their income statement and balance sheet to HM Revenue and Customs every year, for larger businesses this could be more often. The Income Statement (Trading Profit And Loss Account)

I would also point out the fact that the “trading profit and loss account” is now called an income statement. The income statement was constructed at 31ST December of 2006 and 2007, the date is very important on this statement because any time after this is constructed the income statement will become invalid as the variants in the income statement such as inventory value will change. The “sales” section in the income statement states how much sales Wansbeck Motors made in that year, this can also be expressed as revenue. The sales show that there has been an increase of £100,000 from 2006 to 2007; this could have been for a number of reasons such as more advertising. The “less cost of sales” section in the income statement is the section where all the costs of making a sale are listed, for example raw materials. A business would aim for their cost of sales to be lower than sales so that they can actually make a profit. In terms of Wansbeck LTD it shows that the cost of sales had increased by £150,000 from 2006 to 2007; this is a huge increase, it also shows that the extra sales of £100,000 had cost £150,000 to get. The rise in the cost of sales could have been for a number of reasons such as the rise in price of raw materials, rise in inflation etc. The “gross profit” section shows how much money the business had made after the cost of sales has been taken away from revenue (sales). In terms of Wansbeck LTD they have made £250,000 in 2006 and £200,000 in 2007 leaving them with a loss of £50,000 the main reason for this loss would be the huge increase in the cost of sales compared to the low increase that they had...
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