What Information Is Included In A Profit & Loss Account?

If you are in business you will be required to disclose your business’ profit or loss. Dependent upon the financial size of your  company, will decide what format your financial reporting (accounts) will required. If your business is a limited company, plc or LLP then you will need to file accounts with Companies House. Only businesses with a particular turnover figure or above need to have their accounts audited.  The turnover figure is not the same as the profit figure. If you are not a limited company, LLP or plc company but in partnership or a sole trader then you are not required file your accounts with Companies House (the Government Agency responsible for collating, registering and monitoring companies under the current legislation. H M Revenue & Customs do require that partnerships and sole traders do disclose and follow their legislation and therefore you have to file your profit or loss to them, the same as limited companies, plc’s and LLP’s have to. When reporting to the Revenue, it is helpful to have minimal accounts prepared even though they will only be lodged to the Revenue.   These accounts are not required to be complex but could include a profit and loss account. The profit and loss account will disclose and affirm the figures which are described on your tax return. Profit and loss accounts are besides used by banks and financial companies if you are applying for any type of credit and they normally would like to view your last three years accounts and/or tax returns. So what is a profit and loss account and how do you produc one?

If you are out shopping at any time and you use your company account for whatever the purchase maybe (women’s perfume, or anything else) then these must not be included the company’s financal statements and can not be part of company spending.

A profit and loss account is a summary of your company transactions and simply shows the bottom line of whether your business made a profit or loss at the end of a specific time. A profit and loss account consists of two main sections with the top section showing your income and the second half showing your expenditure.

To appreciate the revenue figure and how it is derived from, it is then divided into sub categories.   One category shows your turnover figure and the other category indicates any other revenue received. Turnover or business sales is the total amount of your product sales or services in your financial year or period. It is important that you have a effective scheme to record these fgures.   You could make use of a computer software program which specialises in this, but you possibly could also use uncomplicated computer spreadsheets or manual accounting ledgers.

Companies could also receive funds from additional sources like bank interest, sales from assets like equipment, receive supplementary revenue or rent which is all classed as other income. A company will want to analyse their spending into three main headings which are business expenses, cost of equipment and cost of sales. A business will incur expenses  in the process of creating or obtaining its product or service which it sells and these outlay  get known as in the accounts as cost of sales. General business expenses which are needed for your company to operate including insurance, rent and rates, administrative expenses such as stationery will all be collated under the heading of business expenses. Any spending relating to any equipment your company has or uses is classified under cost of equipment.  This may include cars and any equipment which is leased or purchased on hire purchase.

It is imperative that you monitor the admnistration of receipts and business outlay that is claimed for, so that no private expenditure, e.g. a new women’s belts, does not get claimed.

Although a company could choose when it wishes its year end to be, for self employed people and partnerships, it can be less complicated if your year end finishes on 31 March or 5 April. If you wish your accounts figures to finish and be available for the preparation of your tax returnn, by choosing a year end date of 31 March or 5 April will mean that your accounts and tax return information are the same and you are not required to cross reference to other years financal statements to get the correct data for your tax return. When preparing for this year end, you can do a set of financial statements as a period end rather than a year end. By deciding a specifc date for your financial statements to go too which might be more beneficial, then you can prepare a set of accounts to that month end date from your year end and produce a period set of financial statements instead of annual accounts.   These accounts will cover a set number of months. After this you could prepare annual accounts to your new year end date.

All financial statements should be supported by invoices and receipts as well as your ledgers. It is a legal requirement that you must keepall your supporting ledgers and paperwork for at least six years which if the authorities request to look at must be available.

Now you will be able to read and appreciate your profit and loss financial statements that your accountant produces for you or be in a position to create a draft one for yourself.