Profit and Loss Accounting
A business’s profitability is measured by the Profit and Loss Accounting (also known as Statement of Financial Performance). This accounting is done over a period of time known as the accounting period. The accounting period is usually monthly, bi-monthly, quarterly, half-yearly or annually. It tells the income and expenses of the business. Income includes sales income, interest income, rental income etc. Expenses are the costs associated with generating these sales and typically include cost of goods sold (e.g. stock purchases, freight in, etc), operational expenses (such as rent, vehicle, salaries, utilities, insurance) and financial expenses (such as interest on loan, bank fees, etc). The net result of the Profit and Loss Accounting will end up in a net profit or a net loss for that particular period. It is then the story of the business for that period resulting in success or failure.
Cash Flow Statement