Profit and loss account (winst-en-verliesrekening)
The profit and loss account shows the income and expenses of a financial year and the resulting result. It describes a period, whereas the balance sheet is a snapshot.
What does profit and loss account mean?
The profit and loss account shows the income and expenses of a financial year and the resulting result. It describes a period, whereas the balance sheet is a snapshot.
Income and expenses are allocated to the financial year, regardless of when payment takes place. The permitted layout can differ by type of cost or by function. The version to be published depends on the size class.
How does it work?
art. 2:377 DCC gives two layouts for the income and expenses from ordinary business activities. The by-nature model (paragraph 3) arranges by type of cost: net turnover, wages, social security charges, raw and auxiliary materials, depreciation and other operating costs. The by-function model (paragraph 4) arranges by function: cost of turnover, selling costs and general administrative costs, with the gross turnover result as a subtotal. In the Decree on annual accounts models (Besluit modellen jaarrekening) these are models E and F.
Both end with the financial income and expenses, the taxes and the result after taxes (art. 2:377(1) DCC). Net turnover is the income from the supply of goods and services, after deduction of discounts and of taxes levied on turnover such as VAT (paragraph 6).
Example
A manufacturing BV has € 200.000 of turnover. By nature: raw materials € 70.000, wages and social security charges € 60.000, depreciation € 10.000 and other operating costs € 30.000; together € 170.000, operating result € 30.000. By function the same costs are divided differently: of the wages, € 40.000 belongs to production, € 12.000 to sales and € 8.000 to administration, and depreciation and other costs are allocated in the same way. Outcome: cost of turnover € 125.000, gross turnover result € 75.000, selling costs € 25.000, general administrative costs € 20.000, operating result again € 30.000.
In the annual accounts
Profit and loss account internally for every class; micro and small entities do not usually publish it.
Difference from the cash flow statement
The profit and loss account shows income and expenses, allocated to the year to which they belong; the cash flow statement shows receipts and payments. The profit and loss account is a statutory part of every set of annual accounts (art. 2:361(1) DCC); the cash flow statement is not in that article but in the Guidelines (RJ 360).
Common mistakes
- Treating cash receipts as turnover
- Booking costs only when paid
What to watch for
- Choose one model and keep to it; deviating from the previous year requires sound reasons and explanation (art. 2:363(4) DCC).
- With the by-function model you still state wages and social security charges in the notes (art. 2:382 DCC).
- Micro entities have their own short format (art. 2:395a(5) DCC); small and medium-sized entities may combine turnover and the costs of raw and auxiliary materials into the gross operating result (art. 2:396(4) and 2:397(3) DCC). Step by step: preparing a profit and loss account.
Legal basis and source
art. 2:377 DCC
Frequently asked questions
Does a small BV have to prepare a profit and loss account?
Yes. It is part of the annual accounts that the board prepares. Only the publication requirement lapses: a small entity files the balance sheet and the notes (art. 2:396(8) DCC).
What is the difference between the by-nature and the by-function model?
The by-nature (categoriale) model shows what kind of costs were incurred, such as wages and depreciation. The by-function (functionele) model shows what they were incurred for: production, sales or administration. The result is the same in both.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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