Large corporations compile their profit and loss (P&L) account to be presented as part of their financial statements at the end of the financial year. Budgets are a priority for departmental, middle and project managers. It is rare that any manger would ever switch from one to the other. The only exception to this rule would be the owner/managers of small- and middle-sized enterprises, where the manager and the managing director are often one and the same. Entrepreneurs usually let their accounts compile the P&L at the end of the year, but they can choose to manage the progressive compilation of P&L figures as the year passes.
- Skill level:
- Moderately Easy
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Create an automated accounting system, either by buying a pre-written package, or by using formulas in a series of linked spreadsheets could transfer the running totals of expenditure and income entered on one sheet into the categories required for a P&L template on another sheet. By entering every expense as it occurs and every payment as it is received, the management of the P&L becomes an automated task.
Maintain the cash flow account for the day-to-day and medium-term management of the company. A budget is only a forecast, providing a cap on expenditure. However, budgets have to be frequently adjusted to account for changes in the cash flow. A small business can do away with a budget as long as it monitors its cash flow. The data of the cash flow will also feed into the incremental management of the P&L figures. The cash flow spreadsheet could be kept in the same workbook as the income and expenditure sheet and the P&L sheet. Just as the formulas in the P&L spreadsheet would update automatically with income and expenditure details, the receipt and layout of cash can be compiled automatically from basic transactional data entered in the first spreadsheet of the workbook. An up-to-date cash flow account will result in a summarised cash flow statement at the financial year end.
Disregard month end adjustments. A profit and loss account is only presented at year end. You do not need to present its position at the end of each month. A monthly budget needs to be examined, accounted for and reallocated each month, which requires complicated adjustments to account for unpaid bills and invoices, stock on hand, prepayments and partially finished goods. These issues are irrelevant to the profit and loss account. Any adjustments will be added by the company accountant at year end once all the accounts have been written and the balance sheet and P&L are finalised for presentation to the authorities.
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