The statement of profit or loss

This example will help you to understand how income and expenditure in the statement of profit or loss on page 87-88 (Statement of profit or loss by nature) would be presented in the published financial statements format.

A trader’s statement of profit or loss would be presented as follows in the published financial statements format for limited companies:

A trader: statement of profit or loss for the year ended 31 March 2021

 

 

£ 

Revenue (= sales)

347,250 

Cost of sales (= opening inventory + purchases – closing inventory)

 (154,420) 

Gross profit (revenue – cost of sales)

192,830 

Distribution and selling costs (motor expenses only)

(12,250) 

Administration expenses (all other expenses except for bank interest)

 (130,920) 

Operating profit (gross profit – distribution and selling costs – administration expenses)

49,660 

Finance income

950 

Finance expense

 (6,000) 

Profit before taxation (operating profit + finance income – finance expense)

 44,610 

Notes on the statement of profit or loss of a trader:

  1. As in the example of Bunns the Bakers’ statement of profit or loss, income and profit figures are shown without brackets, while items of expenditure are shown in brackets to help you understand which items are subtracted and which items are added to determine the result (profit or loss) for the year.
  2. Revenue is exactly the same as sales in the statement of profit or loss by nature format.
  3. Cost of sales is the total of opening inventory + purchases – closing inventory.
  4. Distribution and selling costs comprise of just motor expenses as these are expenses incurred in distributing goods. Due to a lack of any further information on the other expenses, none of these can be classified as distribution and selling costs. Further investigations might enable some of these expenses to be reclassified as distribution and selling costs, but this information is not to hand at present so all other expenses have been treated as administration expenses.
  5. Administration expenses are made up as follows: £9,500 (heat and light) + £25,685 (rent and rates) + £48,345 (wages and salaries) + £10,050 (administration expenses) + £2,000 (accountancy) + £1,950 (legal expenses) + £24,000 (depreciation of non-current assets) + £7,500 (insurance) + £1,890 (miscellaneous) = £130,920.
  6. Finance income is the bank interest received.
  7. Finance expense is the bank interest listed under expenses, a cost.