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 31^st 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 31^st 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%