P5 Interpret the contents of a trading and profit and loss account and balance sheet for a selected business’s annotated final accounts.

The trading account shows the business has made a gross profit before taking into account other expenses associated with the business such as overheads.

The purpose of a profit and loss account is to:

Show whether a business had made a profit or a loss over a given time period (e.g.financial year).
Describe how the profit or loss arose (e.g. categorising costs between most of sales and operating costs).

Sales/Revenue is an income earned by the business from the sales of its products/services over a period of time, including discounts and deductions for returned merchandise. Sales/Revenue is known as the “top line” because it is displayed first on a company's statement. Expenses are deducted from revenue in order to obtain net income— the “bottom line”.
Sales is calculated by multiplying the price at which goods or services are sold by the number or units or amount sold.

Gross Profit it is a company’s total revenue, only those expenses directly related to the production of goods for sale, called the cost of goods sold (COGS). These include expenses for raw materials and the labour to assemble a product but exclude other: debts, taxes, interest or operating expenses.
Gross profit can be calculated with formula: Gross profit = revenue — costs of goods sold.

Cost of Goods Sold (COGS) are the direct costs attributable to the production of the goods sold by the company. This amount includes the cost of the materials used in creating the product along with the direct labour costs used to produce items. It excludes indirect expenses such as distribution costs and sales force costs. Cost of Goods Sold appears on the income statement and can be deducted from revenue to calculate a company’s gross margin.