One of the things clients most misunderstand is the relationship between their profit and loss account and the money in their bank account.

Much head scratching ensues as they look at their profit and compare it to the money in the bank.

Without muddying the waters even further, hopefully I can clear the fog a little….


Before you start reading what comes next, please ensure that you read to the end and that you have no other distractions.

Some receipts into your bank account e.g. monies you have introduced to the business and some payments from your bank account e.g. personal drawings and the capital repayment part of a bank loan will not be included in your profit and loss account.

Then there are items shown in your profit and loss account that you won’t have actually received or paid yet.  So your income will include amounts of money you are owed and your expenses will include monies you have yet to pay out.

Are you still with me?

So, to put some meat on these bones (with apologies to vegetarians!) let’s look at some figures to illustrate this:

Now let’s look at how we start with your bank account balance and get to the net profit:

The key to this is to know which receipts and payments are not included in a profit and loss account.


Here’s a brief, but not exhaustive, list:

  • Vehicle, machinery and equipment purchases in excess of £200 (as a rule of thumb)
  • The capital repayment part of any loans
  • Monies put into the business by the owner/director
  • Monies taken out of the business by the owner/director
  • Any personal items paid for from the business bank account
  • Dividends (in the case of limited companies)


Hopefully that has cleared the fog a little.

Please let me have your comments or quesions below



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