PROFIT AND LOSS ACCOUNT BUSINESS VOCABULARY IN USE (ADVANCED)

 

BUSINESS VOCABULARY IN USE (ADVANCED) 34. PROFIT AND LOSS ACCOUNT

 

A Accruals accounting Maria Malone continues: ‘The accruals principle means that events in a particular reporting period, for example sales of goods or purchases of supplies, are recorded in that period, rather than when money is actually received or paid out; this may happen in later period.; B Profit and loss ‘The profit and loss (P&L) account records the money we make (or lose!) during a particular reporting period, using the accruals principle. In our case, our accounts record sales from books, magazines, television advertising, etc. during the period – this is the money received from sales, minus the labour and cost of materials used to produce them, which is called the cost of goods sold (COGS). C Earnings ‘From the profit after tax, also referred to as earnings, we usually pay dividends to shareholders, and you can see the figure for dividends per share. However, when business is bad, we may not do this – we may omit, pass or skip the dividend. Naturally, we don’t pay out all our profit in dividends. We keep some to invest in our future activities – these are retained earnings, or reserves. You can look at profitability in terms of earnings per share (EPS), even if some of these earnings are retained earnings and not paid out in dividends.’ EXERCISES 34.1 Match the words in the box to make expressions from A, B and C opposite. (The first one has been done for you.) Now complete each sentence with the correct expression. 1. Our financial year runs from 1 April to 31 March and is made up of two six-month ________ ________. 2. The company’s ________ ________ has increased by 10 per cent this year. 34.2 Read the profit and loss account for a UK company. Then look at A, B and C opposite and say if the statements below are true or false. All figures are pounds sterling. 1. The £120,000 for selling and general expenses includes the salaries of the salesforce. 2. The £18,000 for depreciation represents an actual amount of money paid out to suppliers. 3. The company has a bank loan and/or paying interest to holders of its bonds.

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