2 min read
What it means
The profit and loss account (P&L) starts with turnover, subtracts the cost of sales to give gross profit, then deducts overheads, interest and tax to reach net profit. It is prepared on an accruals basis, meaning income and costs are recorded when earned or incurred, not when cash moves.
What this means for your company
Because it is accruals-based, a P&L can show a profit while the bank account is empty — the cash may be locked in unpaid invoices or stock. That is why you read it alongside a cash-flow statement. Track your P&L monthly with a P&L template so margin drift shows up before it becomes a crisis.
What it means for you
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.
Frequently asked questions
Why can a profitable company run out of cash?
Because profit is booked when a sale is made, not when the customer pays. If customers are slow and stock is high, cash lags well behind profit — the classic overtrading trap.
How often should I review the P&L?
Monthly, as part of management accounts. Annual statutory accounts arrive too late to act on. A monthly P&L lets you spot rising costs or falling margins while you can still respond.
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