Profit and Loss Statement

The Profit and loss statement or Income 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 monthly to assist in business decisions. The other main accounting report is the Balance Sheet.

Profit and Loss account – Management accounting

A profit and loss account is a 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 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 report will show the business name and the period that the report is for, this can be a week, month, quarter, year or any period that you require.

The figures 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 period in connection with the sale or expense.

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 be posted as a cost of sale on the profit and loss account.

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

  • Sales – Include the sales when they take place; this may not be the same month as when payment is received.
  • Cost of Sales – Include the cost that relates to the sales which have taken place.
  • Accruals – Include any expense which relates to the month for which no invoice has been received.
  • Prepayments – You may receive an invoice for a period of time or a future date, post the correct amount in the month it relates to.
  • Depreciation – If you own fixed assets, they are depreciated over a period of time, a monthly figure will need to be included.

The account is 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 provide you with either a Profit or Loss figure.

Example Profit and Loss Statement

Sample profit and loss statement

Profit and Loss Account Template

We have produced and free Excel Profit and Loss template for a year. There are times when you want to view the whole years’ figures in one place, which allows you to see if there are variations during the year. The template will enable you to set up your business name, enter the dates and categories for sales and expenses. It is suitable for both self-employed and Limited companies. The template is also known as an Income Statement.

The Income statement template is easy to set up and use. There are five sales and fifteen expenses categories that you can name to suit your business. If you have more categories, you can join some together.

Profit and Loss Template
self employed profit and loss or Income template example

Net Profit Margin Calculator

The figures from the report can be used to calculate the net profit margin. This figure is used to see how successful the business is. Find out further information, example and use a net profit margin calculator.

For further reading, read the article from Accounting Coach.

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