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June 24, 2022
June 24, 2022
Self employed

What’s a profit and loss statement?

Desiree Weimann
Desiree Weimann
We look at what a profit and loss statement is, who needs to complete it and how Earnr can help make this bit of bureaucracy a bit easier.
Earnr is the finance and tax companion for the self-employed and side hustlers. We give you more time to run your business. Download Earnr for free on iOS. Need tax advice now? Ask Earnr AI, our new AI tax assistant

A profit and loss statement (or income statement, or statement of operations, or P&L statement) reports on the profits and losses, and expenses and revenues of a company over a given period of time, often a fiscal year or a quarter. 

The P&L statement essentially shows anyone taking a look at a particular company how successful it really is, in cash terms. This can be helpful for potential investors or shareholders as well as internally so companies can understand where they might need to make changes. 

The P&L statement is one of three statements limited companies need to publish, alongside their balance sheet and cash flow statement. These help paint a picture of the company's health and act as an important reference for a company looking at changes in their financials over the course of several years. 

What’s on a profit and loss statement?

A profit and loss statement will usually begin with a section for revenue, known as the top line, and then subtracts the costs of running the business. These costs include the cost of goods sold or services provided, operating costs, tax expenses and interest expenses. Once you’ve subtracted these from the top line revenue, you get the bottom line, which is the net income, or profit (or loss if these expenses outweigh the revenue brought in). 

On a profit and loss statement you’ll find:

How do I know if I need to complete a profit and loss statement?

If you’re a publicly listed company, i.e your shares are traded on the stock exchange, you’ll be required to submit a profit and loss statement to Companies House. 

If you’re a privately held limited company, i.e one individual or a group of individuals acting as a single entity own the company outright, then you don’t need to make a public record of your profits or losses, only for your tax return submissions.

If you’re self-employed you’re not required to complete a profit and loss statement in the same way, but your self-assessment tax return will contain the same details. 

How do I complete a profit and loss statement?

Much like doing your self assessment tax return, putting together a profit and loss statement can be straightforward if you regularly track your ingoings and outgoings. In itself putting together the statement can be a little complicated and getting an accountant involved is definitely helpful. 

If you decide to take on the challenge yourself, you'll need to go back over the period you’re covering (whether that’s a month, a quarter or a year) and mark down the revenue, costs of goods, SG&A costs, marketing and taxes, interest expenses and net income. You’ll need to be able to show where these numbers come from, so make sure to assemble all receipts and invoices over the course of the period.

How can Earnr help?

Earnr allows you to organise your transactions, securely store receipts, and view your income expenses and profits. This means that when you come to doing a profit and loss statement, you’ll have all the information you need to complete it quickly and accurately. 

Download the Earnr app now

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