 The Balance Sheet is a snap shot in time of a company's overall worth. The Profit & Loss Account (P&L) is a report of the company's profit on the sale of their goods or the provision of their service over a trading period, normally one year.
Below is a working example of a Profit & Loss account. The preceding numbers (i.e. 07) of each line are there to help explain the individual terms and calculations: these notes are found further down the page.
See Below for the Example Table:
PROFIT & LOSS ACCOUNT 2001/2000 | |
01. Income | 1
| | | | 02. Turnover
|
| | | 3050 | 03. Cost of Sales
| | | |
| 04. Materials | | 1,400 | | | 05. Wages | | 650 | | | 06. Total [4+5] | | | (2,050) | | 07. GROSS PROFIT [2-6] | | | | 1000 | 08. Distribution | | | | | 09. Marketing | | 75 | | |
10. Delivery Costs
| | 80 | | | 11. Total [9+10] | | | (155) | | 12. Expenses | |
|
|
| 13. Rent/Lease | | 13
| |
|
| Insurance |
| 10 |
|
|
| Professional Fees |
| 30 |
|
|
| Utilities |
| 35 |
|
|
| Debt Write Off |
| 30
|
|
|
| Salary |
| 120 |
|
|
| Motor |
| 80 |
|
|
| Interest Charges |
| 50
|
|
|
| Depreciation |
| 50 |
|
| 14. Total [All of 13] | |
| (540) |
| 15. NET PROFIT BEFORE TAX
[7-11-14] |
|
|
| 305
|
NOTES : A 'Note' to the Profit and Loss (or Balance Sheet) gives a breakdown of the amount stated in a particular line. The Notes to the Accounts are part of the published accounts of a company: i.e.
| | Note
| £ (000)
| 01.Turnover | 1 | 3,050 | Would read in the Notes to the Accounts: | | | | | | | 1 Geographical Analysis of Turnover
| | | UK |
| 2,050 | Europe West
|
| 750
| Motor Vehicles |
| 250
| | | | -------- 3,050 |
Guidance Notes
01. INCOME: (02)
This is the total value of INVOICED products or service's supplied, LESS vat, and trade discounts over a one year period. The words 'Turnover' and 'Sales' would mean the same.
03. COST OF SALES: (04, 05, 06)
This is the direct cost of goods or services SOLD. All other goods left at the end of the accounting period are entered as 'Stock' in the Balance Sheet. If you were a house builder, bricks, wood and glass would be direct costs within 'Materials'. As would the wages for the brick layer, joiner and glassier be direct costs within 'Wages'. The cost of advertising the houses would not be a direct cost as advertising is not part of the building/manufacturing/production cycle. The same applies to wages for the administration staff.
07. GROSS PROFIT
This figure is the total amount of profit on all sales after deducting the direct cost of making the goods or supplying the service. Expenses, tax and interest are yet to be deducted.
08. DISTRIBUTION (09, 10, 11)
This area covers postal and vehicle distribution, wages for sales and marketing staff, agent commissions, sales outlets and anything that is clearly involved with sales promotion. 12. EXPENSES (13, 14)
All costs outside of 03. and 08. are listed here. Again, as with all costs in the P&L, figures exclude vat. Most of the expenses are self explanatory, however, depreciation is not so straight forward.
Depreciation is the reduction in value of a fixed asset. Lets look at a production machine with a working life of five years. The reduction in value would be as follows:
Machine purchased 1996 Value £5,000 With no scrap value
Depreciation @ 20% Per Annum £1,000 1999 Worth £4,000
Depreciation @ 20% Per Annum £1,000 2000 Worth £3,000
Depreciation @ 20% Per Annum £1,000 2001 Worth £2,000
Depreciation @ 20% Per Annum £1,000 2002 Worth £1,000
Depreciation @ 20% Per Annum £1,000 2003 Worth £ 0
When you buy a new machine the purchase value is added to the FIXED ASSET column in the Balance Sheet. At the end of each year the value of the machine reduces the FIXED ASSET amount in the Balance Sheet. For an equal five year period a compensating entry is needed in the P&L (this is 'double entry' bookkeeping). It is very similar to a write off entry.
15. NET PROFIT BEFORE TAX
This figure is the profit resulting from all sales in the period. Corporation Tax @ 20% (or whatever the current rate if different) has to be deducted from this amount for a true figure.
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