Incomplete Records

Calculating Profit or Loss from Capital Figures

The Profit Formula

Once opening and closing capital have been calculated from statements of affairs, profit is found using:

Profit = Closing capital + Drawings − Opening capital

If the result is negative, the business has made a loss.

This is presented in a Statement of Financial Position extract (capital section):

Opening capital (W1)              x
Add profit for the year (W3)      x
Less drawings                    (x)
Closing capital (W2)              x

Worked Example — Jai Carapaz (year ended 30 November 2014)

During the year Jai withdrew £13 500 cash for private use.

W3 Profit: Closing capital + Drawings − Opening capital = 50 000 + 13 500 − 49 590 = 13 910

Worked Example — Richard Hindley (year ended 31 May 2014)

During the year Richard withdrew £8 400. Bank balance at closing date was an overdraft of (£1 270) — treated as a liability.

W1 Opening capital (at 31 May 2013):

• Assets: 730 + 200 + 14 500 + 6 250 + 12 000 = 33 680
• Liabilities: 6 750 + 9 650 = 16 400
• Capital: 33 680 − 16 400 = 17 280

W2 Closing capital (at 31 May 2014):

• Assets: 300 + 16 750 + 5 750 + 19 000 = 41 800
• Liabilities: 1 270 + 7 500 + 8 450 = 17 220
• Capital: 41 800 − 17 220 = 24 580

W3 Profit: 24 580 + 8 400 − 17 280 = 15 700