If you are in business you will be required to disclose your business’ profit or loss. Depending on the size of your business, will depend on where you have to report to and the style you have to disclose it in. Companies House is the organisation that collates all the accounts for limited companies, plc’s and LLP’s. When producing your financial statements you will have a turnover figure which is not the same to the profit figure.  The degree of this turnover figure will stipulate whether you need to have your financial statements audited. Companies House is the Government agency that registers, monitors and ensure companies disclose as necessary under the Government regulations.  These regulations only require the limited companies, plc’s and more recently LLP’s to register their accounts there, so if you are a partnership or a sole trader, you do not need to do this. H M Revenue & Customs do demand that partnerships and sole traders do declare and follow their legislation and therefore you must file your profit or loss to them, the same as limited companies, plc’s and LLP’s have to. To be in a position to lodge to the Revenue and complete their required returns, you will need to have simple accounts produced which will include a profit and loss account. The profit and loss account will show and support the figures which are shown on your tax return. You could also find that if you apply for any sort of credit to a bank or finance business, they can request for your last three years accounts and in particular will want to view a profit and loss account. What information is held in a profit and loss account?

You must only include company expenditure in your accounts and any personal expenditure ought not be included.   If you use your company account for any shopping or any other purchases whatever it be, whether it is women’s accessories or items for the home or family, then this must not be included in your company financial statements.

A profit and loss account is a summary of your company transactions and plainly shows the bottom line of whether your business had a profit or loss at the end of a specific period. The top section of a profit and loss account shows the income for the company over a set time period and the bottom part will show the business’ expenditure.   Anyone can prepare their own profit and loss account following this basis.

To understand the income figure and how it is derived from, it is then split into sub categories.   One category shows your turnover figure and the other category indicates any other revenue received. Turnover can also be called business sales as it describes the income which has been received from the sales of your products or services (depending on your business type). There are countless ways you possibly could record your daily/weekly or monthly income so that you can bring all the figures together simply.   You can do this by making use of a manual accounting ledger, by creating a basic computer spreadsheet or you possibly could look at purchasing an accounting software program.

As well as the business’ primary income, it may also receive revenue 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. There are three primary classifications for expenses.  These are costs of sales, cost of equipment and business expenses. Any outlay  that happen in order to get or create your product or service are classified as cost of sales. All the outlay  that made in order that your business can function which includes rent, utilities, travel expenses, advertising expenses, administration and stationery costs  are all classified as business expenses. Spending of equipment is the expenses  of any equipment for example computer equipment, furniture, tools and machinery and vehicles that you have purchased or leased enabling you to create your business.

It is important that you manage the administration of receipts and company expenditure that is claimed for, so that no personal expenditure, i.e. a new women’s belts, does not get claimed.

An accounting date is the date you will disclose your accounts to on a yearly basis.   For self employed or partnership companies, you can find it more convenient to have your year end finishing on 31 March or 5 April. By choosing the dates of 31 March or 5 April, it will help your accounting and tax return preparation simpler as the figures will coincide with each other. When creating this year end, you can prepare a set of financial statements as a period end instead of a year end. By choosing a new date for your accounts to go too which might be more better, then you can prepare a set of accounts to that month end date from your year end and prepare a period set of financial statements instead of yearly accounts.   These accounts will cover a set number of months. From then on you could complete annual accounts to the year end you prefer.

You need ensure that you keep all receipts and records supporting your income and expenditure. As a company you must make sure that you keep all your paperwork to support your entries in your accounts for  the legal amount of time which is at least six years.

Now you will be able to look at and read your profit and loss financial statements that your accountant produces for you or be in a position to produce a draft one for yourself.