A profit and loss account is a financial statement which helps show the companies performance to management and investors. If your comp[any is registered you will need to produce a profit and loss account with your annual accounts.
The profit and loss account is exactly what it says tit lists out costs and turnover then calculates overall profit, net profit and pre tax profit.
- Turnover/revenue – this is the total amount of money that the company has brought in during the period this the profit and loss relates to.
- Cost of sales – this includes materials and any other variable costs involved in the production of the product or delivery of service.
- Gross Profit – this is the total profit that you have after taking into account your income and cost of that income.
- Costs and other expenses – This will include office supplies, salaries and any other expenses that do not fall into cost of sales.
- Pre tax profit – As the name implies this is the total profit after all costs excluding tax have been deducted.
- Net Profit – this is the total profit l;left after deduction of all costs and tax this is the actual profit kept for the company.
An example of the profit and loss account looks like this:
Turnover: 100,000
Cost of sales: 30,000
Gross Profit: 70,000
Costs and other expenses: 50,000
Pre tax profit: 20,000
Tax deduction: 5,000
Net Profit: 15,000
This gross profit can now be divided into dividends or put back into the company. As you can from the table above this gives a great indication of how well financially your company has done throughout the profit and loss period usually a year but can be quarterly or monthly.
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