A business has to prepare and show its financial results. The size of your business and its financial success will determine where you have to file your accounts and what certain formats to have to comply with. If your business is a limited company, plc or LLP then you will need to file accounts with Companies House. Only companies with a certain turnover figure or above need to have their accounts audited. The turnover figure is not the same as the profit figure. However, if you are a sole trader or partnership, you do not have to submit accounts to Companies House (the agency who monitor and register businesses under the current Government regulations). H M Revenue & Customs do require that partnerships and sole traders do report and follow their legislation and therefore have to report their profit or loss to them, the same as limited companies, plc’s and LLP’s have to. To be in a position to report to the Revenue and complete their required returns, you will need to have basic accounts prepared which will include a profit and loss account. This can then be sent with your tax return to support any entries on your tax return. Profit and loss accounts are also used by banks and financial companies if you are applying for any form of credit and they normally would like to see your last three years accounts and/or tax returns. What does a profit and loss account show?
The profit and loss account brings together your business’ financial transactions and summarises them into useful categories which can be reviewed. They also summarise these to show if a profit or loss has been made. They will cover a given time period, your accounting period, which is usually a year but can at times be longer or shorter, for example when you are just starting or ceasing a business. You can create your own profit and loss account. To start with you will want to simply split it into two halves with the top half being your income and the bottom half showing your expenditure.
The income figures are then further analysed by showing your turnover figure and other income. Turnover or business sales is the total amount of your product sales or services in your financial year or period. How you record this information will vary depending on the type and size of your business but you could use a simple listing in a book, or a computer spreadsheet or a computer software program.
As well as the business’ main income, it may also receive income from any property which it owns, sale of any assets including equipment, any additional cash or bank loans and bank interest and this is all classed as other income.
Business expenses which are spent in connection with the production or creation of your product of service you sell are called cost of sales. Business expenses are the costs incurred enabling you to carry out your business such as rent, travel and motor expenses, administration and stationery, interest and advertising. Any expenses relating to any equipment your business has or uses is classified under cost of equipment. This can include vehicles and any equipment which is leased or bought on hire purchase. Only expenditure relating to the business should be included in your profit and loss account and any personal expenditure should be taken out from the figures in your accounts.
When choosing your accounting period being a self employed or a partnership it is easier if you produce your accounts on a yearly basis with the year ending either on 31 March or 5 April. This will mean your accounts will fall in line with the information and figures needed for your tax return and will make the process of completing your tax return easier. If your year end is out of sync with these dates, you can produce a set of accounts for a specific date period and then start again with yearly accounts. By choosing a new date for your accounts to run too which might be more beneficial, then you can produce a set of accounts to that month end date from your year end and produce a period set of accounts instead of yearly accounts. These accounts will cover a set number of months. You will now have a new year end date and will produce yearly accounts from this date forward.
You must ensure that you keep all receipts and records supporting your income and expenditure. This needs to be retained for a minimum of six years.
You should now be in a position to understand any profit and loss accounts that you review and understand the figures contained within them. Many bookkeepers, financial and administrative assistants understanding profit and loss accounts are women bringing a range of experience and glamour to a business.
Obtain useful info about the topic of managed forex account – please read this web site. The time has come when concise information is really only one click away, use this possibility.
RSS FEED
