B2.104 The form of the accounts
There is no tax statute stipulating the form that accounts are to take. The emphasis is on presenting accounts that show the correct profit figure, calculated in accordance with GAAP, subject to exceptions for those using the cash basis, for example (see B2.102).
Rather than prescribe the form of accounts that should be delivered to HMRC, the tax legislation provides for penalties for errors in accounts and other documents (see B2.106).
The form of the accounts will depend to some extent upon the nature of the trade, its size and the way in which it is carried on. In a trade involving the purchase and sale of stock, the profit and loss account usually starts with a trading account showing the gross profit arising from sales made during the period. The main profit and loss account then shows the net profit (or loss) remaining after the overhead expenses of the business have been charged and any miscellaneous items of income (such as interest and cash discount received) have been credited.
All the relevant accounts, however they are named, that lead up to the figure of net profit (or loss) for the year have to be considered when preparing a tax computation. If an item such as depreciation of plant has been debited to costs of sale, it is no more an allowable item of expenditure than if it had been charged to administrative