Remember an
income statement is also the same as a profit and loss account. The profit and
loss account is the old name for an income statement.
A Sole Trader Profit and Loss Account
There is no law
to say that a sole trader needs to have a profit or loss account. However it
will help if the sole trader wants to expand their business they might need to
show a profit and loss account to a bank if they wish to borrow money.
Income statement
of Jose Mckenny for the year ended 31st December 2011
Sales 250,000
Opening stock 50,000
Purchases 100,000
Closing stock (30,000) (120,000)
Cost of Sales
Gross Profit 130,000
Overhead
Wages 25,000
Rent 5,000
Light and Power 15,000
General expenses 2,000
Interest paid 1,000 48,000
Net profit 82000
A Partnership Profit and Loss Account
There is not
much of a difference between a sole trader's profit and loss account and a
partnership profit and loss account. The only difference is that a sole trader
gets to keep all the profits, while a partnership has to share the profits.
Let us see an
example of a profit and loss account.
Tom, Dick and
Harry are in a partnership together. They share if any the profits together by
40% for Tom, 30% for Dick and 30% for Harry.
Income
statement of Tom, Dick and Harry for the year 31/12/2011
€ €
Sales 500,000
Less: Cost of
Goods Sold
Purchases 100,000
Less Closing
Stock 50,000 150,000
Gross Profit 350,000
Less: General
Expenses 40,000
Administration Expenses 40,000
Net Profit 270,000
Profit or Loss
Appropriation:
Tom (40%) 108 ,000
Dick (30%) 81,000
Harry (30%) 81,000
A
Limited Company Profit and Loss Account
A limited
company by law must produce a profit and loss statement.
Here is an examples of a profit and loss statement of a Limited Company:
Income statement of Big Bucks Ltd. for the year ended 31st December 2011
Sales 250,000
Opening stock 50,000
Purchases 100,000
Closing stock (30,000) (120,000)
Cost of Sales
Gross Profit 130,000
Overhead
Wages 25,000
Rent 5,000
Light and Power 15,000
General expenses 2,000 (47,000)
Operating Profit
Profit before interest and tax
Interest paid (1,000) 83,000
Profit before tax
Corporation Tax (50,000)
Net Profit 23,000
With this income statement you will see corporation tax. Since this is a registered company they must ay tax towards the government and must be in the income statement. Corporation tax is a tax or levy that is placed on a firm's profit. Ireland has a low corporation tax of 12.5%
