The purpose of the profit and loss account is to:

• Show whether a business has made a PROFIT or LOSS over a financial year.
• Describe how the profit or loss arose – e.g. categorising costs between "cost of sales" and operating costs.

A profit and loss account starts with the TRADING ACCOUNT and then takes into account all the other expenses associated with the business.

Trading account

The trading account shows the income from sales and the direct costs of making those sales. It includes the balance of stocks at the start and end of the year.

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