Four lines carry the message
A P&L has twenty lines and four messages:
| Line | What it answers |
|---|---|
| Turnover | how much was supplied |
| Gross profit | what is left after direct costs |
| Operating result | what is left after all running costs |
| Result before tax | what the tax calculates on, almost |
Everything in between is breakdown. Anyone laying those four side by side over six months sees more than in any single report: whether turnover is growing, whether it was bought with growing costs, and where.
Direct costs are those that would not have arisen without the job: bought-in services, materials, project freelancers. Rent and bookkeeping do not belong there, because they arise regardless of job volume.
Profit is not money
Anyone wanting to know whether there is money looks at the bank. Anyone wanting to know whether the business works looks at the P&L. The two questions coincide only in businesses that trade for cash.
The tax falls on a different figure
This is the point at which the P&L stops being self-explanatory for a Cyprus company.
The P&L result is not the basis of corporate tax. For the taxable result it is converted:
Added back are non-deductible expenses, such as private motor vehicles and the part of entertainment exceeding 1 % of gross income or €17,086, whichever is lower. See the guide to business expenses.
Replaced is accounting depreciation, by the statutory rates. See the guide to capital allowances.
Both figures are called profit, and they are different. That is not an error but the system: one is a commercial result, the other a tax base.
Monthly instead of yearly
A P&L produced once a year is a review of something that can no longer be changed. Finding out in February that a cost block started growing in May helps nobody.
Read monthly it does two things:
- It shows a trend while you can still intervene.
- It supplies the running profit on which the estimate for provisional tax rests. If the estimate falls below 75 % of the assessed profit, a surcharge of 10 % applies, see the guide to provisional tax.
The second point is not convenience but money.
What we could not substantiate
- A prescribed format for the Cyprus accounts. That accounts have to be prepared under Article 152A is not in dispute. Which format is prescribed in detail and which accounting standards apply we did not check for this article.
- The complete list of add-backs. Private motor vehicles and the excess part of entertainment are named consistently; we did not work through a conclusive list.
Bookkeeping: the four lines, without ordering them
The most common reason a P&L does not get read is that it first has to be requested.
In Volk Accountant the reports arise from the running books, month by month, without anybody ordering them. Banking shows the money side alongside, so the difference between profit and bank balance stays visible, and the tax estimate tracks the 15 % on the running profit.
What else there is to do in a month is in the guide to the monthly close.