Profit and Loss I know the bank account balance is low so why does my accountant insist I have made a profit? Money in money out – a much easier concept to understand than an actual Profit and Loss statements however it is not the cash flow that determines how much tax is paid at year end it is the Profit and Loss! Just to confuse the business owner even more Profit and Loss statement can be prepared on a cash or accrual basis. An Accrual Profit and Loss takes into account all income and expenditure regardless of whether or not the funds have been spent or received. Therefore a telephone bill that has been received but not paid will show as an expense and an invoice raised to a client will also be shown as income even if you have not been paid. A Cash Profit and Loss is usually based on actual amounts paid and received..although may include accrued expenses. So obviously a Cash Profit and Loss is the same as cash flow – no in most cases it is not. Due to many ATO rules and concessions this is not the case as adjustments need to be made. The most common example would be depreciation. The business has bought new computers, screens and a server costing $10,000 ex GST. Unfortunately in many cases the $10,000 will be depreciated over more than one financial year reflecting the expectation that the useful life of the asset is expected to extend beyond one financial year Another common example is the repayments on a loan. If the finance is a lease and the item in 100% used for business the full amount can be claimed as a deduction. Whereas if the finance is a loan or Chattel Mortgage only the interest paid is deductible and then additional calculations re depreciation need to be accounted for. An accurate Profit and Loss statement can be complex and professional advice should be sought to ensure accuracy. The Projected Profit and Loss spreadsheet available for downloading is a little different to the one prepared at year end by an accountant as will not take into account adjustments. It is more a combination of a both a Business Budget and Profit And Loss. The projector is a useful tool designed to help businesses owners plan for increasing desired level of profit, determining if the business can afford expenditure on a new project or perhaps the affects of employ a new staff member. Historical or prior year figures are a good base to start from and then the document can be changed to project figures such as what would happen if I increase sales by 5% each month, reduce entertainment by 25% or take on a part time employee costing $250 a week. Often setting a target for monthly sales in itself will encourage goals to be achieved and the resulting increase in profitability to be realised. Please note that Accounting Revolution takes no responsibility for the use of this template and/or conclusions the user may come to. The template should be used for estimations and discussions only and should not be relied on without professional advice. |