Read your Profit & Loss statement

This article explains how to read the Profit & Loss statement, the layout it follows from revenue down to net profit, how to choose the period you are looking at, how to compare it against a previous period or the same period last year, and how it treats VAT depending on the scheme you are registered under.

The layout: revenue to net profit

The Profit & Loss statement builds down through four stages, in this order:

1. Revenue, the total sales income for the period you have selected.
2. Cost of sales, the item costs and directly related selling costs tied to what you sold in that period.
3. Gross profit, revenue minus cost of sales. This is what is left before your running costs are taken out.
4. Expenses, your other running costs for the period, subtracted from gross profit to arrive at the final figure.

The bottom line is net profit, revenue minus cost of sales minus expenses. Each stage is shown so you can see not just the final number but where it came from, whether a weak result is down to thin margins on cost of sales or to expenses eating into an otherwise healthy gross profit.

Choosing a period

The statement is built around a period you choose using the period presets on the page. Pick the period you want to review and the revenue, cost of sales, gross profit, expenses and net profit figures all recalculate for that window. The KPI cards at the top of the page summarise the headline numbers for the period you have selected, and a monthly trend view lets you see how each of these figures has moved month by month rather than as a single static total.

Comparing against a previous period or year

Alongside the period you have chosen, you can turn on a comparison against the prior period or the same period a year earlier. This puts your current numbers next to an earlier baseline so you can see at a glance whether revenue, gross profit and net profit are moving up or down, rather than only ever seeing the current period in isolation.

How VAT is folded into the statement

The way VAT affects the figures on this statement depends on the VAT scheme set on your business profile:

• Standard VAT. Revenue and cost of sales are treated net of the VAT you charge and reclaim, so the figures reflect your underlying trading result rather than the VAT you are collecting and passing on to HMRC.
• Flat Rate scheme. The statement reflects the flat rate you pay to HMRC rather than the VAT you actually charged and reclaimed line by line, matching how the scheme works in practice.
• Margin scheme. VAT is calculated on your margin rather than on the full sale price, and the statement folds this in accordingly.

See the related articles below for more on tracking costs and reviewing your numbers.