Explanation of the components of Profit and Loss and Balance Sheet

Profit and Loss
A profit and loss allows a business to work out whether they have made a profit or loss after taking away all the expenses from their sales revenue.
Purpose and Use: The purpose of a profit and loss account if correct is to be able to show how much profit or loss a business has/ will make. It includes the sales, costs and profit over a set amount of time normally yearly. Its use is that it could help measure the performance of a business and with possible decision making in the long term on perhaps decisions like whether to take trade credit or not.
Trading account and calculations of gross profit: This involves the trading account which is the beginning part of the calculation of gross profit. It has three parts which are as follows: 1. Sales turnover – this is the money that a business has coming in by providing a trade for e.g. providing a service in Denise's case. It is worked out by the following calculation quantity sold x selling price. 2. Cost of goods sold – this involves the costs that are directly connected to providing a certain trade for e.g. the cost of buying raw materials used to produce the goods/ service for e.g. with Denise her cameras etc. This is calculated in the following formula opening stock + purchases – closing stock. 3. Gross profit – this is the amount of money or surplus which is left once the cost of goods sold have been taken away from the sales turnover but will not give a businesses end profit as they still will be expenses to deduct. It is calculated through the following formula sales turnover – cost of goods sold.
Calculation of net profit: This is the money which is left after all the expenses have been taken away from the gross profit and also when any other income has been added. The calculation for net profit is gross