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Help Understanding P&L Statement

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    Help Understanding P&L Statement

    Hi there, sorry for the long 1st post, hope someone could take a look at the numbers

    I recently moved from an ubmrella co to my own Ltd Co with a new contract.

    I've completed my 1st month & have received the P&L statement from my accountant. I have a few questions which I asked the accountant but ended up more confused.

    I have submitted 4 invoices. The 1st 3 shown above were for services. The 4th was a VAT only invoice issued to catch the VAT due on the 1st 3 invoices which were issued before my company VAT registration was completed. I have also since applied for the FRS



    It looks to me from the numbers above that the "income" from VAT (invoice 4) has been used in calculating the turnover which I didn't think it should be.

    My fag packet calculation would be net turnover £5589 from the 1st 3 invoices then 20% of this is the VAT £1,117.90
    Then deduct expenses of £2,619.76 from £5589 giving £2,969.24 profit before tax. I think I'd need to add the flat rate VAT saving of £212.38 based on 13.5% for the 1st year to the profit before tax to get £3,181.62
    80% of this is £2,545.29 which I think is the profit available for dividends.

    Accountant said

    "With regards to the confusion in relation to the figures on your profit and loss summary, please see the below breakdown, which shows no difference in your figures if VAT was charged initially rather than separately:



    Invoice Net Gross



    1 £2,218.73 £2,565.00

    2 £1,307.88 £1,512.00

    3 £1,307.88 £1,512.00

    4 £966.90 £1,117.80



    £5,801.39 £6,706.80



    Invoice Net Gross



    1 £2,662.47 £3,078.00

    2 £1,569.46 £1,814.40

    3 £1,569.46 £1,814.40



    £5,801.39 £6,706.80



    As you can see, the above figures do not match the figures as per the profit and loss summary you received, however that’s because flat rate VAT has not yet been applied to your invoices yet – this is something that will be done on receipt of your approval letter. To bring your figures up to date, an adjustment will be made on your next profit and loss summary.



    So if you can just overlook that fact for a moment, you can see that once flat rate VAT has been applied to your invoices, there is no difference between your figures, whether the VAT was charged separately on an invoice or if it was charged initially when the invoices were first raised.



    The first example is with the VAT charged separately – the flat rate percentage of 13.5% is applied to the gross amount of your invoices, so you multiply the gross by 0.865, and this gives you are up to date net figure. The reason we calculate this new up to date net figure is because when you pay VAT, you pay in line with your flat rate, so this calculation takes into account the actual VAT you will be paying across rather than the full 20%.



    The second example is with the VAT charged initially – the 20% VAT is charged on top of the initial amount, giving us a net, VAT and gross amount. However, again the flat rate percentage of 13.5% is applied to the gross amount to calculate the new net amount that we need, and this new amount is used in place of the standard rate (20% VAT) net amount, for the same reason as mentioned above. "

    #2
    You must use the same accountant as me as I recognise the format.

    I do not think the last invoice should be shown as net income, as this is VAT and will not add to your profits?

    I assume that you have asked the question of your contact?

    If so, ask them to review it again as it does not look right to me.

    They are right that an adjustment will be needed once your flat rate has been approved but that will just enhance the income from the first three invoices, as it is shown the adjustment will reduce the net income.
    "The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." Cicero

    Comment


      #3
      Thanks. I did query it with the accoutant, their reply is in italic. I'm going to have to go back to them again with my detailed workings as I'm convinced they have treated the 4th invoice for VAT as income & this in turn has increased the amount available for dividend which can't be correct.
      However I welcome anyone elses input.

      Comment


        #4
        The figures, as they stand from your accountant, are wrong. The P&L overstates profit, which in turn overstates your profit available for distribution.Your fag packet calculations are correct.

        Having said that, your accountant does acknowledge that they are wrong, and has asked you to overlook this in the meantime, as it will be sorted once your FR approval has come through, and they have updated their system. Its an odd way to do it, but each to their own I suppose.

        Probably best to stick with your own calculations until your accountant has sorted themselves out.
        2012 CUK Reader Awards - '...Capital City Accountancy, all of whom were outside the top three yet still won compliments from CUK readers for their services' - well, its not an award, but we'll take it! - Best Accountant (for IT contractors) category
        2011 CUK Reader Awards - Top 3 - Best Accountant (for IT contractors) category
        || Check us out at: http://www.linkedin.com/company/capi...ccountancy-ltd

        Comment


          #5
          Thanks Greg. I don't think the accounts should be presented this way as another person may go declare an ultra vires dividend if they took the figures at face value without checking which I understand is not a good idea. I'm not planning on doing taking a dividend yet so its not an issue for me. I guess this is just an example of the extra responsabilites I have now as a director.

          Comment


            #6
            No problem - yes, you're right about the dividends. You have a good grasp of the situation though, so you will be able to navigate your way through the first few months until your accountants calcs catch up.
            2012 CUK Reader Awards - '...Capital City Accountancy, all of whom were outside the top three yet still won compliments from CUK readers for their services' - well, its not an award, but we'll take it! - Best Accountant (for IT contractors) category
            2011 CUK Reader Awards - Top 3 - Best Accountant (for IT contractors) category
            || Check us out at: http://www.linkedin.com/company/capi...ccountancy-ltd

            Comment


              #7
              According to my understanding VAT shouldn't appear in the PnL at all. it should go to the balance sheet and shown as a liability (on the assumption sales are greater than its purchases)

              If this treatment of sales VAT is true, then you would also claim purchases VAT as an expense !?

              I think it looks like he is working withthe system eg it is showing VAT as net income and he has to do it that way rather than he is unsure on how to treat it.

              And just for future ref VAT should go straight to the balance sheet. With the flat rate scheme once you have done the return and you have the profit figure, I would journal the profit into the PnL.
              Last edited by blinko; 4 February 2012, 09:40.

              Comment


                #8
                I went back to the accountant after the replies to this thread confirmed my thinking. They confirmed they had made a mistake, problem now sorted.

                Comment


                  #9
                  Good for you. Another illustration of why people should always learn enough to check things themselves rather than just assume accountants must be right.
                  bloggoth

                  If everything isn't black and white, I say, 'Why the hell not?'
                  John Wayne (My guru, not to be confused with my beloved prophet Jeremy Clarkson)

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