Last Updated on August 1, 2021 by admin
The profit and loss or income statement is a summary of income and expenses for the accounting period. It should show the name of your business and the period that the statement covers. The following example of a profit & loss statement summarises the income & expenses of a small gardening business:-
Sales
Because the gardener is using cash basis this will be the money he has received from customers for providing his services.
Cost of Sales
Cost of sales (or cost of goods sold) differs from other expenses in that it refers to the costs incurred in providing the service or goods as opposed to overhead expenses which are expenses incurred to keep the business running. In the case of gardener this would be the materials he had purchased such as soil, compost and plants.
Gross Profit
The cost of sales is deducted from sales to give the gross profit.
Net Profit
Net profit is the amount left after deducting all other expenses that have been paid.
Net profit per your accounts may not be the same as taxable profit even when using cash basis. If your Profit and Loss contains different types of income ensure you put the correct income in the correct box / section when filling out your tax return. Remember too there are limitations of cash basis accounting. Any personal use or disallowed expenditure must be removed or declared. If you are in doubt about what you can claim check at HMRC.
Many people find that filing their tax return online is easier. Soon everything will need to be digital.