Profit and Loss accounts?

Question

What two types of profit does a profit and loss account calculate?

Explain what is meant by the term GROSS PROFIT

Explain how gross profit is calculated

Explain what is meant by the term NET PROFIT

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Answer 1

The 2 types of profit are gross profit and net profit.

Gross profit is sales minus cost of goods sold.

Net profit is gross profit minus all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from gross profit. A common synonym for "net profit" when discussing financial reports (which include a balance sheet and an income statement) is the bottom line. This term results from the traditional appearance of an income statement which shows all allocated revenues and expenses over a specified time period with the resulting summation on the bottom line of the report. Generally speaking, this term is synonymous with Pre-tax Profit.

Answer 2

The missing report that Rudy needs is the cashflow statement. It will show him the net effects of all of the transactions on the Cash account. If the P&L statement shows a profit and Cash in bank is overdraft, here are some of the reasons: 1) On Dec 31, Cash collections from the customers were advised to Rudy but was not received by the bank until later. 2) Rudy's failure to recognize expense from a prepaid expense account. 3) Unrecorded but paid expenses as of Dec 31.