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Last edited 01 Nov 2020
Profit and loss account
Businesses will typically maintain a variety of financial statements to monitor performance over a set period. These include balance sheets, cash flow statements and profit and loss accounts. A profit and loss account will display the business’ income from sales, bank interest and any other income, goods to sell on to customers, or they may be more general administrative expense such as stationary. The expenses are subtracted from the sales to calculate how much profit (where income exceeds expenses) or loss (where expenses exceed income) a business is making.
A simple profit and loss account would display the income or turnover at the top with the expenses and costs beneath. The costs would usually be arranged into groups, rather than listed individually for ease. For example, rather than listing stamps, paper, pens, pencils, envelopes etc, it is appropriate to group them all under the title of stationary.
 Legal requirement
By law, if a company is a limited company or a partnership whose members are limited companies, a profit and loss account must be submitted annually as part of the financial statement to Companies House.
- Records of all sales and takings.
- Records of all purchases and expenses.
- A list of petty cash expenditure (if relevant).
- A record of goods taken for personal use and any payments to the business for these.
- A record of any money taken out of the business for personal use or paid in from personal funds.
- Back-up documents of all the above.
 Information to be displayed
- Sales or turnover – the total sales of products and/or services.
- Other income which includes interest on any business bank accounts, sale of equipment no longer required, rental income in to the business, money put into a limited company from personal funds and so on.
The three main categories for business expenditure are:
- Cost of sales – the base cost of creating the product. This includes the cost of stock for resale, components/raw materials, labour to produce the product, small tools and any other production costs.
- Business expenses – the ongoing expenses associated with running a business which can include; employee costs, premises costs, repairs, general administration, motor expenses, travel/subsistence, advertising, interest, legal/professional costs, bad debts, depreciation, any other expenses.
- Cost of equipment purchased or leased for long-term use – known as ‘capital items’ or ‘fixed assets’ which can include: furniture, computer equipment, vehicles, machinery, premises and so on.
 Example Profit and Loss Account
|Turnover (or Revenue)||Xxx|
|Cost of sales||Xxx|
|Profit before tax||Xxx|
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