Calculation of profit of an organisation where there are insufficient records to prepare income statements; could include use of statements of affairs
Some businesses only keep basic financial records. You can still calculate their profit by comparing what the business owned and owed at two different points in time.
Formula
Profit = Closing Net Assets − Opening Net Assets + Drawings − Capital Introduced
Real World
A market trader in Camden who only records daily cash takings can still calculate annual profit by comparing what the stall was worth at the start and end of the year, adjusting for any cash the trader took out or put in.
Exam Focus
Always adjust for drawings and capital introduced — forgetting these is the most common error and costs easy marks.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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