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The profit and loss (P&L) account  is a summary of a business’ trading transactions i.e. income, sales and expenditure and the resulting profit or loss for a given period, normally 12 months. A profit and loss account is produced primarily to show owners, shareholders or potential investors how the business is performing, but most of the information is also used by HM Revenue & Customs to check tax calculations.

It is broken down into the following:

  1. What the company sold;
  2. What its costs were;
  3. How much profit or loss it made within an accounting period after deducting all expenditure from income. This gives the ‘bottom line’ as to whether there was a profit or loss at the end of that period. A net profit is earned if total expenditure is less than the sales and a net loss if it is greater. In simple terms, Revenues – Costs = Profits;
  4. What the tax charge was;
  5. What was left for shareholders;
  6. How much was put back into the company;
  7. Comparable figures for the previous year.

Turnover: This is the amount of money taken by a business in a particular period. In the case of RMC’s this is usually for ground rent and lease extensions.

  1. Administrative Expenses

Administrative expenses represent the finances required to run the daily operations of the company but as these costs are not directly attributable to the production of goods and services they can include Company Secretary expenses and accountancy fees.

The Administrative Expenses are subtracted from the Turnover which gives the Operating Profit

The Operating Profit is the profit earned from a firm’s normal core business operations

  1. Other Interest Receivable And Similar Income (such as bank interest)
  2. Interest Payable & Similar Charges

There might (or might not) be entries in the above. If there are not, then the Operating Profit figure remains the same as does the Profit On Ordinary Activities Before Taxation: (the figure reached when the administrative expenses are subtracted from the Turnover

  1. Tax On Profit On Ordinary Activities

This is the UK Corporation Tax for the domestic current year and is subtracted from the profit on ordinary activities before taxation.

All this results in the Profit For The Year which is the statement of movements on the profit and loss account. This will show the balance at the beginning of the year in question, (which is the balance and the profit for the previous year added together) the profit for the current year and, added together, the balance at the end of the year in question.

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