state the purposes of measuring business profit and loss

1.1 The purpose of accounting 📊

Accounting helps us keep track of a business’s money. By measuring profit and loss, we can see whether the business is growing, staying steady, or shrinking.

Why do we measure profit and loss? 🤔

• Show how much money the business actually earns.
• Help managers decide where to spend or save.
• Provide information to investors and lenders.
• Meet legal and tax reporting requirements.

Analogy: The Business as a Garden 🌱

Think of profit as the sunshine that helps the garden grow. If there’s too much rain (expenses) and not enough sunshine (revenue), the plants (business) may wilt. By measuring profit, we can adjust the watering schedule (cost control) to keep the garden healthy.

Simple Profit Formula 📐

$$Profit = Revenue - Expenses$$

Example: Mini‑Business 📦

Exam Tips for 1.1 📚

1. Always start with the definition: Profit is the amount left after all expenses are deducted from revenue.
2. Use the formula in your answer: $Profit = Revenue - Expenses$.
3. Show a quick example to demonstrate the calculation.
4. Remember to explain why profit matters to different stakeholders.
5. Keep your answer concise and to the point – examiners look for clarity.