Statement of profit or loss
Also called: Profit and loss account, Income statement
What is a statement of profit or loss?
The statement of profit or loss sets the income of a period against the expenses of the same period.
It is built in steps. Revenue less cost of sales is gross profit. Gross profit less expenses is the profit or loss for the year.
Assets, liabilities, capital and drawings stay out of it.
Example
Revenue is £30,000.00 and cost of sales is £20,000.00, so gross profit is £10,000.00. Expenses are £6,500.00, so the profit for the year is £3,500.00.
Why it matters
It shows whether the business made a profit or a loss over the period. The period is usually a year, so its heading reads: for the year ended.
Practise it
Module, 5 rooms, all freeSole trader accounts
Practise it nowThe statement of profit or loss for a sole trader
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].