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What Is A Profit & Loss Account?

The Profit & Loss Account (or P&L Account) is one of three primary financial statements (together with the Balance Sheet and Cash Flow).

It is a summary of the revenue received by a business in a period together with costs and charges for the same period, deducted to show the profit earned.

In the UK all companies have to report their accounts to shareholders in a prescribed format under the Companies Act 2006. (This needs to be updated)

The most common format is:

Turnover

minus Cost of Sales

equals Gross Profit

minus Sales & Distribution Costs

minus Administrative Costs

equals Operating Profit

minus Interest & Similar Charges

equals Profit Before Tax

minus Corporation Tax

equals Profit After Tax

The format is not very good for management information.

Too often I have seen accounts prepared by professional accountants that are very detailed in the easy to analyse costs but short of information for revenue (turnover or sales) and gross profit which is where the really important information is contained.

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