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Uses and the importance of the Trading and Profit and Loss Account

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Uses and the importance of the Trading and Profit and Loss Account

ZIMSEC O Level Principles of Accounts 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 Principles of Accounts Notes.

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By | 2017-01-17T11:14:54+00:00 March 3rd, 2016|Notes, Ordinary Level Notes, Principles of Accounts Notes|0 Comments

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He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.

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