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Terminology

We now have to make an important distinction in the use of terminology. In most textbooks on accounts, you will see the terms 'sales' and 'cost of sales'. There is an important difference between these terms.

Revenue

This is the amount of money received from selling your fruit. Revenue is found by multiplying price by the amount sold. If you sell 50 apples at 20p then your revenue is £10.

Sales

'Sales' or 'Sales revenue' is the same as revenue.

Cost of Sales

This is the amount of money you have had to pay out to get the goods (or stock) you are going to sell. In this example, it is what you have to pay to your uncle for the fruit you are selling.

You now have enough information to see how you are doing after 4 weeks of trading. We can show what we are doing by preparing the information into what is called a 'profit and loss account'. Normally a profit and loss account is drawn up after a year's worth of trading but it is useful for us to see what the format is like.

Note- the shed itself, display boxes, money box and lab coats are all costs you have had to pay but do not appear on the profit and loss account. These are things the business owns and are classed as assets rather than overheads.

Please find a printable version of this table here.

Please go to the completed version here to check your answer.

The first four weeks of trading have left us with a loss for your 4 weeks' work. You show a loss in the profit and loss account by enclosing the figure in brackets (see the completed version). This might sound like a disaster, but there is an important thing to remember here - some of the costs you have to pay are what are called 'fixed costs'.

These are costs which have to be paid no matter how many products you sell. If no one came to buy fruit from your stall, you would still have had to pay for the maintenance on the shed, the lab coats, the delivery costs, the moneybox and the display boxes. The word 'fixed' does not mean they never change - it is quite possible that the maintenance on the shed would rise to £10 per week rather than 5, your uncle might tell you he wanted £3.00 per day delivery charge!

The costs of buying the fruit does change - they change depending on the amount bought from your uncle. If you buy 50 apples one day but only 30 the next your costs of buying apples will change. These types of costs are called 'variable costs'. Variable costs change directly with the amount produced or sold.

Whilst you have made a loss from your efforts over the first four weeks, let us look at the situation after the next four weeks of trading.

Please find a printable version of this table here.

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