A list of all balances taken from a company’s ledger after incomes and expenses have been offset to arrive at a profit or loss. These balances are combined in carefully prescribed ways to form a balance sheet as required by the Companies Act (71 of 2008) and GAAP. Essentially, the profit calculation begins with the trading account where the direct expenses are subtracted from the company’s turnover to arrive at gross profit. The next step is in the income statement where fixed expenses are subtracted from the gross profit to arrive at net profit. Finally, the Income Statement gives those elements of the profit calculation which are “discloseable” in terms of the Companies Act and shows how the net profit has been allocated to finance charges, taxation, retained income and dividends.  The balance sheet balances because the retained income is included with previous year’s retained income in the balance sheet.

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