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Completing a profit and loss statement is a legal requirement for limited companies, and gives you an indication of the health of your business.
Read on for some profit and loss account examples and tips on how to complete one for your business.
Also known as a profit and loss account or P&L, a profit and loss statement calculates your business’s net profit or loss for a period of time.
A profit and loss account can give owners a sense of their business’s finances, helping them to identify inefficiencies and potential improvements.
A company’s P&L is complemented by its balance sheet and cash flow statement to give an overall picture of how it's performing.
Business owners often use a profit and loss account to identify:
Read our guide on how to calculate profit margin for more information on the difference between gross profit and net profit.
If you own a limited company, you’ll need to create a profit and loss statement for HMRC each financial year.
Regardless of their structure, most businesses produce a profit and loss statement each quarter and at the end of each financial year.
A profit and loss sheet shows the financial position of your business over a period of time, such as a month, a quarter, or a year.
It gives you a clear picture of your company’s income and expenses, plus whether you’re making profit or losing money.
A P&L shows the demand for your product or service, set against all the costs you incur to provide it.
On the other hand, a balance sheet shows how your business is performing at a particular moment, and how effectively you’re using your resources.
A balance sheet outlines details such as:
Read more about how balance sheets work and download our free balance sheet template.
When completing a profit and loss statement, you’ll need to keep a record of:
Once you have these details for the period you’re measuring, you’ll need to subtract your costs, overheads, and tax from your gross income to calculate a net profit or loss.
You can work out your P&L on a basic spreadsheet, but most basic accounting systems will include a profit and loss account. Read our guides to the best accounting software and bookkeeping for small businesses to get started.
Here’s an example of a profit and loss account for a business over a three-month period: