The Profit and Loss Account
The profit and loss account is as important a document as the balance sheet. Indeed looking at one without the other is a bit like visiting a famous city for the first time without a guide book: you will see a lot of interesting things but you are most likely to miss the real treasures and places of interest. Very early in Chapter 1 we defined profit as the difference between the value of what has been sold and the costs associated with sales. We will now look more closely at the definition and also at the way this account is set out in published accounts. You should then be able to take most profit and loss accounts and describe their main components.
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