Profit and Loss Account provides a breakdown of the business Profits/(Losses), however for tax purposes (Corporation Tax or Personal Tax Due), there is Taxable Profit, which is assessed not the Accounts Profits.
There are many variables to consider but the usual ones are below
Add back to the profit
Private use motor/telephone (Applying to sole trader)
Bank interest (Taxed under another schedule)
The Profit & Loss Statement (Income Statement) is what many third parties look at when assessing a businesses position, however, what should actually be determined to assess whether a business is struggling, stable or prospering is the Balance Sheet (Statement of Financial Position)
The more liquid a business is the better as usually there will be money available in the business and the assets will exceed the total liabilities.
The figures from the Profit & Loss Account are derived from the Balance Sheet with some of the examples below e.g
Bank Reconciliation of receipts and payments
Sales Invoices (Debtors Control/Aged Receivable Account)
Purchase/Expense invoices (Creditors Control/Aged Payables Account)
Payroll summary (PAYE/Wages Control)
VAT Breakdown analysis (VAT Control)
Without the above being processed usually on cloud software such as Sage/Quickbooks/Xero/Freeagent
It would be impossible to prepare the Accounts and have a clear breakdown of the Profit & Loss Account
It is also important that such bank reconciliations should be carried forward to the following year with a clear breakdown and where possible agree to the supporting evidence/documents e.g.
Bank balance to bank statement with any adjustments broken down
PAYE liability to P32 or equivalent report of outstanding liablity
Debtors of customers who money at the year end
Creditors of suppliers you owe money at the year end
Figures/balances need to be verified and approved before finalising so there are no issues for future when making unnecessary and unexplained adjustments in the Accounts.
It is necessary to prepare Accounts as accurate as possible for third party use such as
We are happy to discuss further the important of reconciliation in the Accounts
#accountants #accounting #selfassessment #selfassessmenttaxreturns #vat #bookkeeping #corporationtax #individual #companies #Paye #payroll #taxes #partnerships#charities
Would you like to speak to one of our financial advisers? Just submit your details, and we’ll be in touch shortly. It will be a pleasure to attend to you!