Profit And Loss And Balance Sheets Page 4
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26Accruals And Pre-payments
Profit And Loss Account
Looking at your bank balance now, you’ll
Using all the totals you can get from the
know that you may have paid for things
above calculations:
in advance - for instance, the insurance
Sales
take away
cost of sales
equals
policy you took out in January will last
gross profit
clear through to December.
Take away
running costs and expenditure
That’s a
pre-payment.
in this period (allowing for pre-payments
Also, you’ll be receiving goods or services
and accruals) equals
net profit
now
that you haven’t paid for yet - for
Now you can answer that question,
instance, heat and light used in January
’Are we making a profit?’
may not have to be paid for until the end
of March. That’s an
accrual.
You look at the amounts coming in, and
going out, in this time period, and you’ve got
To get a fair picture of your finances, you
the answer. If you do this
regularly,
you will
need to
add in
pre-payments to your assets
be informed as to the health of the project.
and
take away
accruals.
Are things getting better?
Are things getting worse?
Combined with information in your cash flow
forecast, you can check on progress and
have time to act, if things are going wrong.
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