Profit and Loss Account

How profit and loss account works

It recognises revenue and costs under the applicable accounting policies, which can differ from the dates of cash receipts and payments. The detail should make clear which figures are gross profit, operating profit and profit before or after tax.

Practical UK business example

A business compares quarterly results with the same quarter last year and explains a change in direct costs, rather than comparing three months with a full year.

Illustrative example only; not a finance quotation or a client case study.

Why it matters

It helps owners and lenders understand trading performance and whether earnings can support the proposed borrowing.

Limitations and common misconceptions

It is not a cash-flow forecast and does not show all capital repayments or asset purchases as expenses. Read it with the balance sheet and cash information.

Discuss business borrowing to discuss how the structure relates to your business.