B120 Tma03 Essay

1292 Words Aug 22nd, 2012 6 Pages
TMA 03

TMA 3

1a. Profit and Loss account

A profit and loss account is intended to show a business its income and expenditures and calculate the company’s net profit or loss based upon the difference between those figures. It is extremely useful in determining past performance and to try and predict future results. It enables a business to see what changes could make to improve on its profit. It also give enough information to help a business to set targets.

We can learn more from the statement. As it shows the expenses so we can see clearly see where the largest expenses are, this could then be used to identify the immediate areas to focus on when trying to save on expenses.

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1B) The Purpose of a Profit
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It also helps in understanding the value of the business assets it owns and this can used to help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment.

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B. The Purpose of a balance sheet

After reviewing the Balance sheet I have a concern regarding the Current and short term liabilities. Creditors/ trade payable is payment yet to be made for goods already received, if this continues to rise then it will effect the business profit and less stock will have to be ordered so repayments can be made. Bank overdrafts also continued to rise and in the long-term the business will be paying greater interest, which will again eat into the profit. Both increased quite a great deal from the last year-end. If this continues then the business will get into bad debts and owe too much that it will end up having to sale its assets to survive. Finally I can see that due to the above issues and other issues the net current assets/ working capital has decreased so therefore the business is less value then it was a year ago. If the business is worth £1 million now, this could soon decrease within another year.

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Q3.
A Cash flow
A Cash flow Statement shows both money coming into the business

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