Wednesday, 22 August 2012

Produce a Profit and Loss Account for the following: A Sole Trader, Partnership, A Limited Company

Remember an income statement is also the same as a profit and loss account. The profit and loss account is the old name for an income statement.


A Sole Trader Profit and Loss Account
There is no law to say that a sole trader needs to have a profit or loss account. However it will help if the sole trader wants to expand their business they might need to show a profit and loss account to a bank if they wish to borrow money.



Income statement of Jose Mckenny for the year ended 31st December 2011


                                               
Sales                                                                                                      250,000
Opening stock                        50,000
Purchases                              100,000
Closing stock                        (30,000)                                                (120,000)
Cost of Sales                                                                                      
Gross Profit                                                                      130,000

Overhead
Wages                                      25,000
Rent                                           5,000
Light and Power                     15,000
General expenses                    2,000
Interest paid                             1,000                                                   48,000
                                                                                                                            
Net profit                                                                          82000





A Partnership Profit and Loss Account


There is not much of a difference between a sole trader's profit and loss account and a partnership profit and loss account. The only difference is that a sole trader gets to keep all the profits, while a partnership has to share the profits.

Let us see an example of a profit and loss account.
Tom, Dick and Harry are in a partnership together. They share if any the profits together by 40% for Tom, 30% for Dick and 30% for Harry.


Income statement of Tom, Dick and Harry for the year 31/12/2011

                                                            €                                  €

Sales                                                                                       500,000
Less: Cost of Goods Sold
Purchases                                         100,000
Less Closing Stock                           50,000                          150,000
Gross Profit                                                                        350,000

Less: General Expenses                                                          40,000
          Administration Expenses                                             40,000
Net Profit                                                                           270,000


Profit or Loss Appropriation:

Tom (40%)                                                                            108 ,000
Dick (30%)                                                                                81,000
Harry (30%)                                                                              81,000





A Limited Company Profit and Loss Account

A limited company by law must produce a profit and loss statement.

Here is an examples of a profit and loss statement of a Limited Company:



Income statement of Big Bucks Ltd. for the year ended 31st December 2011


                                               
Sales                                                                                                      250,000
Opening stock                        50,000
Purchases                              100,000
Closing stock                        (30,000)                                                 (120,000)
Cost of Sales                                                                                      
Gross Profit                                                                      130,000

Overhead
Wages                                      25,000
Rent                                           5,000
Light and Power                     15,000
General expenses                    2,000                                                    (47,000)

Operating Profit

Profit before interest and tax
Interest paid                             (1,000)                                                   83,000         

Profit before tax
Corporation Tax                      (50,000)                                                                                            

Net Profit                                                                            23,000



With this income statement you will see corporation tax. Since this is a registered company they must ay tax towards the government and must be in the income statement. Corporation tax is a tax or levy that is placed on a firm's profit. Ireland has a low corporation tax of 12.5%

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