Whatever kind of company you're running, you will need to produce accounts for every financial year. The basic records will be purchases and sales and the expenses of running the business. You need to break down your expenses into different categories, and to calculate a total figure. All this information will be required in order to collate a profit and loss account, which will show you, and the tax inspector, your net profit for the accounting year [source: Business Link]. Now let's look at how to put together a profit and loss account.
- Write down the amount of money you received when you sold goods during the last complete accounting year on the left side of a sheet of paper.
- Write the cost of those goods on the next line. Deduct the cost from the amount received for sales. That figure is your gross profit.
- Write down the gross profit underneath the cost of goods sold, in the middle of the page.
- Make a vertical list of all your expenses a little further down the page, on the left side. Start with salaries, and continue with any interest paid on loans. Then write down your rent, fuel costs, insurance, advertising costs and any other expenses you may have had. Don't forget to depreciate any equipment belonging to the business.
- Add up all the expenses, and write down that figure in the middle of the page, underneath the gross profit.
- Subtract your total expenses from the gross profit. This is your net profit.
- Write down the net profit in the middle of the page, in the same column as the gross profit and the expenses. It should be under all the other figures that you have entered. The right side of the page stays empty as that makes it easier to read the numbers on the left and center of the page [source: Huey].