PROFIT / LOSS

~ Dean Bloom ~
~ BloomTech Solutions ~

PROFIT / LOSS
 
 
A Profit & Loss account is the end result of transactions made within all the other accounts. It's a good idea to think logically when completing a P & L account, as all the information needed will already be available within other parts of your accounts.

Very basically, the P & L will reflect the:-

TRADE SALES / TURNOVER

(LESS TRADE PURCHASES)

(LESS OPENING STOCK)

PLUS CLOSING STOCK

= GROSS PROFIT (Sometimes called GP)

From this GP, we deduct the Overheads. Overheads are expenses incurred in order to run the business, i.e. Gas, Electricity, Rent, Rates, Water, Telephones, Carriage Charges, Traveling Expenses, Fuel, Repairs Etc.

When you deduct the Overheads from your GP (Gross Profit), you end up with a NET PROFIT. Sometimes, this is referred to as "the bottom line".

As stated in my opening pages of this site, different rules may apply in different countries as to which expenses you are allowed to claim, but this is still the general idea of what a P & L should look like.

ACCRUALS & PRE-PAYMENTS must also be included within this P & L account.

Accruals are expenses or moneys owed by you/the company but not yet accounted for during the given year. In other words, lets say that when you prepared your year end accounts,  you knew that you had just had a repair to your vehicle for say £1,200, but the invoice had not yet arrived. This is what's known as an accrual, and would have to be included in your overheads for that year.

Pre-Payments are payments made within the year that relate to later periods. Pre-Payments can also be partial Pre-Payments.

Let me explain :-

If  lets say, your year end is 31st July. You have paid your annual insurance bill which covers you until the end of September.
Therefore, you have prepaid 2 months in advanced of your year end (post year end). This has to be deducted from the P & L for this year and added to the P & L for next year.

Think logically when preparing your P & L. Add Accruals, deduct Prepayments.  Take into account all transactions which relate to the given year.

I like to prepare my P & L by showing the Balance Per Trial Balance, Add Accruals, Less Pre-Payments.

Please send my feedback questions, if you need any further information, as there is really far too much to include here about this subject. I will do my best to answer your questions.
 

SALES LEDGER
Invoices
Credits
Payments Received
Allocations
Credit Control
 

PURCHASE LEDGER
Invoices
Credits
Issue Of  Payments
Allocations
Account Queries
 

CASH BOOK
Entry of information
Accounting for VAT
Bank Statement Reconciliation
 

NOMINAL LEDGER
Double Entry
Trial Balance
 

VAT RETURNS
 

FIXED ASSETS
Depreciation
Net Book Value