Profit and Loss
The Company’s income and expenditure over the fiscal year is shown on the profit and loss statement. It is a summary of the financial transactions for the business and is also known as the Income and Expenditure Account. The laws are much more flexible for the smaller companies, sole traders and partnerships in terms of producing a profit and loss statement. For limited companies it is much more regulated and is set out in the Companies Act of 1989. In producing a general profit and loss account, it has to show the sales minus the cost of sales which will generate the gross profit. From that the operating expenses needs to be taken away from it, which include any depreciation, wages and NI, administration expenses and any other costs. Once the operating costs have been accounted for then it will leave the profit before tax and interest. Once these factors have been taken off, the profit for the year will be left. The shareholders have then got to be allocated their dividends, so the last thing to go on the profit and loss account is the dividends paid and proposed, which leaves the retained profit for the year.