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The Basics of understanding your accounts
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Profit & Loss Account
In order to become a Chartered Certified Accountant it takes years of studying and
producing numerous accounts and taxation computations for a wide variety of
businesses. Although we understand the financial information, similar to reading or
analysing a jigsaw puzzle and making sense of them, it is hard to explain in detail how
you should read your accounts. In this and the next page we attempt to give you a simple
explanation of your accounts.
Profit and Loss account / Income and Expenditure account
This should be the first page that you read, for limited companies this is located on the
last page or two of the full financial statements, sole traders and partnerships it is just
before the balance sheet.
The information that is gleaned from this account includes:-
Merchant McDonald - helping you to make sense of the figures!
Profit / Loss
- has the business made any money or not?
Sales Value
- did business activity improve during the year?
Margin Comparison
- have we made as much money as a % of cost, compared to
last year?
General overheads
- mostly fixed - this is the amount of profit that you need to
make in a year before you are making money properly.
Analysis
- Where did the money come from and in which areas did we spend it?
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