Profit and Loss Statement

A profit and loss or net income statement traces the steps from gross profit to operating, net pre-tax and taxed profits

Gross Profit

The difference between sales and the cost of goods sold. All charges associated with goods ; for example inward freight charges, import duties or work carried out on them prior to resale such as relabelling or packaging are included in cost of goods sold.

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Operating profit

The difference between gross profit and overheads and expenses that are solely  concerned with core business operations.

Exclusions include investment income, interest (debt servicing) and profits or losses arising from the sale of fixed assets.

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Net Pre-Tax Profit

Non-operating income and expenditure is then added to operting profit to arrive at the pre-tax profit. This however does not represent the figure upon which the corporation tax charge is to calculated.

The rules for what can be set off and by how much are different to those governing the reporting of profits under the Companies act. 

Taxable Profit

Calculating the taxable profit starts with net pre-tax profit. Charges that may not qualify for tax relief will first be added back to pre-tax profit. These will include entertainment expenses, fines and penalties and depreciation.

Although this means that depreciation is added back, it is substituted for by capital allowances, which generally represent more generous deductions than depreciation, most especially in their first year.

Click here to view an example of a taxable profit forecast

The forecasts illustrated here are live working examples of Figurewizard forecasts calculated simply from a user's sales, margin, overheads, acquisition or sale of fixed assets, finance and a few simple ratios.

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