profit and loss statement

What is Profit and Loss Statement and Why is it Important?

There are three important statutory accounts that are needed to analyse the financial health of your business. The profit and loss statement is one of them that provides a clear view of your income and expenses over a certain period of time. This statement points out the areas where your business is excelling. Along with the balance sheet and cash flow statement, this document plays a key role in taking important business decisions. Let’s find out what is profit and loss statement is and why it is needed?

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What is the Profit and loss Statement?

This statement is also called an income statement or expense statement. The P&L statement shows the income and expenses of the business over a certain period of time. By going through this statement a person can find out whether a business has made a profit or loss. Normally, this document is prepared monthly, quarterly, and annually.

 

Why P&L Statement is Needed?

All companies in the UK need this statement. The P&L statement or income statement is required to keep a track of the accounts. There are several reasons for which you need a P&L statement that includes:

profit and loss statement

  • This statement is needed for submitting annual accounts to the Companies House. This statement is usually prepared by an accountant.
  • If you’re a self-employed professional, you need this statement to submit your self-assessment tax return to HMRC.
  • The P&L statement is required by the management on a weekly, monthly or annual basis to make important business decisions.

 

Importance of Profit and Loss Statement

As evident by the name, this statement shows whether a business has generated a profit or loss over a certain period. You can use this statement in many ways to work out the financial health of your business. With this statement you’d be able to:

  • Point out the areas that are making more profit and take action to ensure you make a profit for the long term
  • Analyse the reasons for any loss and work on them to avoid it
  • Examine your annual performance
  • Calculate the important margins, like gross and net profit margins along with the EBITDA and operating margin and work out a strategy for their improvement
  • Work out the rate of return, including return on equity

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Do All Businesses Need a P&L Statement?

All limited companies in the UK need financial statements to submit to HMRC as part of the annual reporting. It ensures you’re paying the right amount of tax. With these documents, the shareholders and potential investors can get a clear idea of the financial status of your company.

If you are running a small company with an annual turnover of £10.2 million or less, with £5.1 million or below on its balance sheet or fewer than 50 employees, you’re not required to send a P&L statement to Companies House. However, it might be needed for year-end reporting.

 

Want to Prepare P&L Statment?

Although you can prepare the profit and loss statement on your own but it can be burdensome for you if you lack financial knowledge. If you want to prepare it, you need to manage your annual accounts properly. Because a tiny error can lead to future troubles for you.

Therefore you need to hire an accountant to prepare and manage your accounts properly as per the HMRC standards. In addition to that, an accountant can provide you with in-depth advice to reduce your tax burden and boost your savings. By taking the services of an accountant you will be worry-free about your finances and can concentrate on your business progress.

Cheap accountants in London are qualified accountants that provide bookkeeping, accounting, and taxation services at an affordable rate. We have a professional team of accountants in London that will manage your accounts perfectly. Contact us today!

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Disclaimer: This blog provides basic information on the P&L statement.

 

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