One of the key standard accounting reports is the Profit & Loss. For a given period this tells you how much you have made in Sales and how much you have incurred in Expenses.

Note: This is not necessarily the same as how much cash you have received or paid out due to the timing of payments. For example, a Sales invoice you raised on the 31st December, would show as a sale in the period to 31st December. However, you may not have been paid for this invoice yet!

How to read the Profit & Loss

There are a few main sections to understand when it comes to the profit and loss report.

The below is an example profit and loss report for the period 24 Aug 20 - 31 Aug 21.

Sales - These are the goods or services you get paid for. For the period stated above, this would be any sales invoices you have raised, or any cash* sales you have made during the period.

*Sales you didn't make on credit / invoice for

Cost of Sales - The direct costs associated with making your sales. This varies greatly between businesses as to what is included here. In a business selling goods, this would be the cost of those goods. In a service business, this may be things such as commission.

Gross profit - Your Sales less your Cost of Sales

Overheads - These are the administrative, or indirect costs, associated with running your business. Things such as software and accounting fees, and many other business expenses, do not directly relate to your sales. These are what are included under overheads.

Net profit (before tax) - Your Gross Profit less your Overheads

Estimated Corporation Tax - Within Ember, we keep a running total for you based on your current profits, less any disallowable expenses, of what you're likely to pay in corporation tax. Don't worry, this isn't normally due for 9 months and 1 day from when you finished your accounting period! But this helps guide you on how much you're going to need to keep back to pay HMRC.

Net profit (after tax) - Your Net profit (before tax) less the estimated corporation tax

Have any more questions?

If you are unsure then please reach out to our talented team of chartered accountants who are always on hand to offer expert advice as and when you need it.


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