Subsection of: Amira’s Story
Provided by the International Finance Corporation
Amira’s case: Profit and Loss Account (P&L)
Why is the sale on credit shown when we haven’t received the money yet?
Why is the profit figure not the same as the cash I have in the bank?
Still don’t get it…
If all that had happened was the investment of $500, purchases of 400 all in cash, and sales of $600 all in cash, then the profit plus the investment would equal the cash balance. Because simple profit equals cash.
Why is the cost of goods sold calculation so complicated? It looks obvious to me.
Why are the different types of expenditure shown separately?
- Trading – the buying and selling of goods and services
- Administration: the running costs of the business
- Financing: the costs of financing the business
I don’t understand Depreciation. Why do we calculate it?
So, does the profit belong to Amira?
The profit belongs to the business. It is essential to remember that the owner of a business and the business itself are considered separate people, both legally and for most tax purposes. This is especially so when the business is in the form of a limited company. If Amira owns all the shares in the company, then she owns all of it and can sell all the assets and pay off the debts, keeping the remaining money for herself. If someone else owns some shares, then the funds remaining have to be split in the same proportion as the shareholdings.
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