Are you planning to work with British companies or to set up subsidiaries abroad as part of your development? It will be essential for you to master the accounting and financial vocabulary in English and to know the main differences between French and British accounting.
The income statement, or profit and loss account, is an accounting indicator that reflects the financial activity of the company and makes it possible to determine whether the company generates a profit or runs at a loss. What are the main differences between the French and English profit and loss accounts? Bilis provides you with all you need to know about this subject.
Income statement: what is it?
In accounting, the profit and loss account is a financial indicator that summarises all the income and expenses of a company over a given period.
1. Definition of the income statement
More specifically, the profit and loss account is an official accounting document that lists the company’s income and expenditure over an accounting period.
The profit and loss account determines the net result of the company by balancing cash receipts and payments.
2. How is the profit and loss account calculated?
The profit and loss account consists of two main elements: income and expenses.
Income is the sum of sales made by the company (revenue), while expenses are the costs incurred on behalf of the company (purchases of goods or services).
The profit and loss account of a company is calculated by making a global summary of the expenses and income. The difference between expenses and income will determine whether the accounting period shows a profit or a loss. This will enable the company to determine whether it is in surplus (income greater than expenses) or deficit (expenses greater than income).
3. Breaking down the profit and loss account
The nature of the income and expenses included in the income statement is divided into three categories: operating results, financial result and extraordinary results. The final profit and loss account is calculated by adding these three results.
French vs. English profit and loss account
1. Income statement: terms used in English
In British accounting, the term “income statement” or “P&L statement” is used in the United States and “profit and loss account” in the United Kingdom to refer to the income statement. As in France, there are several possible presentations:
- the simplified presentation (single step) presentation which highlights the overall result for the year,
- and the detailed presentation (multiple-step) which differentiates between the result from operating activities and the result from non-operating activities.
2. French and English profit and loss accounts: what are the differences?
Unlike the French income statement, the UK profit and loss account presents expenses by destination and not by nature. For example, personnel costs are not shown as a separate line item, but are broken down into acquisition, production, marketing and administration costs. In contrast, depreciation is shown on a separate line or broken down by purpose.
The English profit and loss account distinguishes 3 main functions:
- The “Purchase or Production” function includes the cost of goods sold (purchase of goods sold for a commercial enterprise and production cost of goods sold for an industrial enterprise). The difference between turnover and cost gives the “gross margin”.
- The “Sales” function includes the costs of sales personnel, advertising and promotion costs as well as depreciation costs.
- The “Administrative” function includes the costs of administrative staff, taxes, depreciation and other operating costs related to this function
Unlike the French system, which deducts discounts, rebates or refunds directly from the purchase and sales accounts, the British profit and loss account emphasises the operating result and highlights the commercial and financial reductions separately.
On the other hand, with the objective of expensing only those items that are directly related to the cost of goods sold, allowances for bad debts are recorded as a reduction of sales instead of being expensed.
In the United States, there are two types of taxes: a federal income tax and a state income tax. Income tax is calculated after the current result to determine the result net of tax.
3. Example of an English income statement
| INCOME STATEMENT – MULTIPLE STEP (Compte de résultat — Présentation détaillée) |
N | N-1 |
|---|---|---|
| SALES (CHIFFRE D’AFFAIRES) | 282,000 | 2250,000 |
| Less: Sales discount (Moins : réductions sur ventes) |
25,000) | 24,000) |
| Less: Sales returns and allowances (Moins : Retour sur ventes et provisions pour dépréciation) |
215,000) | 2(12,500) |
| NET SALES (Chiffre d’affaires net) |
262,000 | 233,500 |
| Inventories, January 1, N (Stocks au 01-01-N) |
24,000 | 20,000 |
| Purchases (Achats) |
167,000 | 150,000 |
| Less: Purchase discounts (Moins : Réductions sur achats) |
(3,000) | (5,400) |
| Less: Purchase returns and allowances (Moins : Retours sur achats et provisions pour dépréciation) |
(8,000) | (6,500) |
| Add: Transportation-in (Plus : Transports sur achats) |
10,000 | 15,000 |
| Net cost of purchases (Coût d’achat net) |
166,000 | 153,100 |
| Less: Inventories, December 31, N (Stocks au 31-12-N) |
(31,000) | (35,000) |
| COST OF GOODS SOLD (Coût d’achat des marchandises vendues) |
159,000 | 138,100 |
| GROSS MARGIN (Marge brute) |
103,000 | 95,400 |
| Research and development expenses (Frais de R&D) |
10,000 | 14,600 |
| Selling expenses (Frais commerciaux) |
41,400 | 40,000 |
| General and administrative expenses (Frais généraux et administratifs) |
24,300 | 21,600 |
| OPERATING EXPENSES (Charges d’exploitation) |
75,700 | 76,200 |
| INCOME FROM OPERATIONS (Résultat d’exploitation) |
27,300 | 19,200 |
| Interest and other income – net (Résultat financier) |
(5,500) | (4,900) |
| Federal income taxes (40%) (Impôt sur les bénéfices) |
(8,720) | (5,720) |
| NET INCOME on ordinary activities of from continuing (Résultat courant net) |
13,080 | 8,580 |
| Discontinuing operations – net of income tax effect (Résultat des activités abandonnées — après impôt sur les bénéfices) |
8,900 | (2,000) |
| Extraordinary items — net of income tax effect (Résultat extraordinaire — après impôt sur les bénéfices) |
(5,400) | 5,300 |
| Cumulative effect of change in accounting principle – net of income tax effect (Incidence des changements dans les principes comptables — après impôt sur les bénéfices) |
(1,100) | (1,600) |
| NET INCOME (Résultat net) |
15,480 | 10,280 |
| Earning per share of common stock (Bénéfice net par action ordinaire) |
$ 0,26 | $ 0,17 |
The profit and loss account is a table that summarises the company’s income and expenditure over an accounting period with the aim of determining the fiscal result. It is an accounting document that allows you to assess the performance of the company and its ability to make a profit. If you are going to be expanding internationally, it is a good idea to understand how the English profit and loss statement works and to consider having it translated, as the stakes are high. Need advice on the translation of your accounting and financial documents? Call on an expert to help you with your project.