Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Uses and the importance of the Trading and Profit and Loss Account

  • People set up businesses to make a profit
  • Profit is the main objective of most privately owned businesses
  • However a business may fail to make a profit
  • The business may make a loss instead
  • The owners of a business will want to know whether they have made a profit or loss at the end of each trading period
  • The owners may also wish to know how the profit they have made compares to the profit they wished/expected to make
  • They may also wish to compare their profits with those of competitors
  • Preparing a Trading and Profit and Loss account helps the business do a lot of things including:
  • planning ahead
  • obtain loans from lending institutions such as banks or from individuals and other businesses
  • tell potential investors how successful the business is
  • tell current investors how much profit was made
  • tell potential partners how well the business is doing in terms of profit making
  • calculate the amount of tax the business has to pay to the government and other authorities

To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.