The Profit and Loss Account
The Profit and Loss statement (P&L) is generally prepared annually and forms part of the accounting documents
a limited company and sole trader need to produce to satisfy the tax authorities.
It shows revenues and costs and how much profit has been made by the business over the period it has
been prepared for.
Anyone can prepare the statement although most businesses choose an accountant and is part of the
general bookkeeping set which also includes a Balance Sheet and cash flow forecast. The general
headings include gross profit, net profit, operation profit and profit before tax. You can
prepare a simple P&L yourself by developing an excel spreadsheet using the sample headings
that are shown below.
Example Profit and Loss and Notes
Here's an example and format of a profit and loss account that shows the standard headings
and the notes for further analysis. The template is the same whether you are a sole trader or
limited company and any questions should be put to your accountant. A consolidated profit
and loss is the same format but generally consolidates a couple of business streams.
|1:||Income/ Revenue/ Sales||10,000|
|2:||Cost of sales||4,000|
|4:||Other direct costs||1,000|
|8:||Profit before tax and interest (EBIT)||2,000|
|11:||Net Profit after tax||1,000|
Notes to the Accounts
Here are notes for the above P&L
- Note 1: Income: All income from sales should be added for the period the profit and loss is
being prepared for whether or not your have received payment for the sale. If you have made
the sale and not received payment then this will be added to your debtors account in
your balance sheet.
- Note 2: Cost of sales: These are all costs directly associated with the sales mentioned above. They
may include the cost of the product purchased and wages for people making the product. These are items
invoiced in the period whether or not you have paid for them. If you have purchased stock then this
should be entered into the balance sheet and only stock that has been used in the accounting period
gets entered into the P&L.
- Note 3: Operating Profit: This is the first summary on the account and is simply income less cost
- Note 4: Other direct costs: If you have additional costs associated with the sales made other than
wages and cost of goods sold then enter them here.
- Note 5: Gross profit: This is simply a calculation of operating profit less other direct costs
- Note 6: Expenses: or overheads which are all other costs you have been invoiced for during the period.
These will include, rent, rates, professional fees such as legal and accountants, marketing, distribution and
warehousing, vehicle costs such as fuel and maintenance, technology and computer costs such as hosting, back office
staff salaries, national insurance, pensions and bonuses, stationery and postage, utility costs such
as heating, water, gas and electricity. Simply list all the costs here. For items invoiced and not yet
paid these will be added to your creditors list.
- Note 7: Depreciation: This is an accounting adjustment and is not directly used for tax calculation
purposes as this is done offline because the tax authorities tell you what depreciation values you
can use rather that what you have applied in your P&L - the other entry goes below fixed assets
on your balance sheet to calculate the net asset figure.
- Note 8: Profit before tax and interest: General the EBIT calculation is made so that company results
can be compared with one another as interest received is not dependant upon the company selling more
products and corporation tax may make the results meaningless.
- Note 9: Interest: This is interest and bank charges paid from your business within the accounting period.
- Note 10: Tax: Tax will be the estimated amount of corporation tax on the business
- Note 11: And finally the net result is all of your invoiced income less all of your invoiced expenses
and purchases less interest paid and tax to be paid gives your overall profit or loss in the period
you are accounting for.