Accounts Demystified, 7th Edition

3

The profit & loss account and cash flow statement

• The profit & loss account
• The cash flow statement
• ‘Definitive’ vs ‘descriptive’ statements
• Summary

Now we know what a balance sheet is and how to construct one, we can move on to the P&L and cash flow statement. In this session, all I am going to do is explain what the P&L and cash flow statement are. We’ll see how to construct them in our next session.

The profit & loss account

Let’s start by looking at a hypothetical situation relating to an individual’s P&L. Assume you’re a fortune-hunter, Tom, after Sarah for her money. What would you want to know before asking her to marry you?

How rich she is or, as you would say, what her net worth is.

So if I told you that her net worth today is £25,000, ...