FAO Sandy Hood/Andrew Harrington and anyone else! P&L A/c

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:28AM in AAT student discussion
I am unclear about an aspect of the Profit and Loss Account regarding its later tax implications. I would be grateful for any advice, please.<BR><BR>I thought that the purpose of the P&L A/c was to deduct 'business' expenditure from gross profit to arrive at net profit. Having arrived at net profit, I would have thought that depreciation being added back would be the only adjustment to be made.<BR><BR>Reading through various texts, including those for ACCA paper 2.3, it seems that all kinds of 'non business' expenditure may have been transferred to the P&L A/c and this, too, is then added back - e.g., private use of telephone, private use of motor car, gifts to customers of food, drink and tobacco, entertaining, and particularly 'sundry' expenses such as donations and fines, etc.<BR><BR>If such items in the P&L A/c have to be added back, what are they doing there in the first place? Shouldn`t they have been excluded ? What is the meaning of a business's P&L A/c if it contains private expenditure? <BR><BR>Thank you.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    FAO Sandy Hood/Andrew Harrington and anyone else! P&L A/c

    Entertainment may be a legitimate business expense but is just one thing that Inland Revenue will not allow as a tax deductable expense. I agree that private use shouldn't be in the P+l anyway but it sometimes is. I sometimes think that where tax is concerned, it's just a case of learning the rules as some don't make sense at all!!!<BR><BR>Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    FAO Sandy Hood/Andrew Harrington and anyone else! P&L A/c

    Thanks, Annette.<BR><BR>Yes, it just seems that the 'wholly and exclusively' rule should apply to the P&L A/c, but it doesn't always seem to - which makes me question the purpose of the expenses section. I am now thinking from a different angle - 'what shouldn't go into the expenses section of a P&L A/c?'........or am I missing something!?

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