Profit and Loss Statement

A profit and Loss statement is required for all companies registered at Companies House by law as part of the financial accounts. If you are self employed then the information which is required to complete your self assessment return is the basics of a Profit and Loss account. The report may also be required by management on a monthly basis to assist in business decisions. The other main report is the Balance Sheet.

Profit and Loss account - Management accounting

A profit and loss account is useful tool for management decisions, as it looks at the costs which relate to sales during the period. It may be that you are selling your goods at 50% higher than you are buying them, but when taking into account all the overheads you are actually making a loss. The pricing, sales and costs can then be reviewed to see how future figures can be improved.

What is included in the Profit and Loss statement

The figures to be posted to the profit and Loss account may not be the same as the transactions in your bank account. Instead they are the figures that relate to the month in connection with the sale.

An example of this during a month a business made sales of £1000, but no goods were purchased, instead existing stock of £500 was sold. This figure of £500 would need to be posted as a cost of sale on the profit and loss account.

There are several other differences from the bank account to the profit and loss account:

The account is basically made up of sales or turnover, less cost of sales which will give you a gross profit figure. All overheads and dividend payments are then deducted to give you a Profit or Loss figure.

Sample Profit and Loss statement

Sample profit and loss statement

Return from Profit and Loss Statement to Accounting Basics page or look at balance sheet for further reading on management accounts.