AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
A profit and loss statement (P&L, or income statement) shows, for a set period, what the business earned, what it cost to earn it and what was left. Read it from the top: sales less cost of goods sold gives gross profit; less running costs gives operating profit; less interest and tax gives net profit. The numbers that matter most are the margins at each level and how they move from month to month.
A shop P&L, line by line
Example only: one month for a provisions shop in Ikeja that is not registered for VAT.
| Line | ₦ | Notes |
|---|---|---|
| Sales | 4,800,000 | Everything rung up or invoiced in the month |
| Less returns and discounts | (60,000) | Refunds and price reductions given |
| Net sales | 4,740,000 | |
| Opening stock | 2,100,000 | Last month's closing count, at cost |
| Add purchases (incl. inward transport) | 3,550,000 | |
| Less closing stock | (2,250,000) | This month's count, at cost |
| Cost of goods sold | 3,400,000 | |
| Gross profit | 1,340,000 | 28.3% of net sales |
| Rent (monthly share) | (250,000) | |
| Salaries, two staff | (280,000) | |
| Power and fuel | (160,000) | |
| Delivery transport | (70,000) | |
| Bank and POS charges | (35,000) | |
| Depreciation of freezer and shelves | (25,000) | A non-cash cost |
| Stock written off (expired, damaged) | (40,000) | |
| Operating profit | 480,000 | 10.1% of net sales |
| Interest on supplier credit | (30,000) | |
| Profit before tax | 450,000 | 9.5% of net sales |
Check the arithmetic yourself: ₦4,800,000 − ₦60,000 = ₦4,740,000; ₦2,100,000 + ₦3,550,000 − ₦2,250,000 = ₦3,400,000; ₦4,740,000 − ₦3,400,000 = ₦1,340,000; running costs total ₦860,000, so operating profit is ₦480,000; less ₦30,000 interest gives ₦450,000.
What each part tells you
Sales
Sales are recorded when earned, not when the cash arrives, if you keep accrual accounts. A VAT-registered business shows sales without VAT, because VAT collected belongs to the tax authority. Under the Nigeria Tax Act 2025, small businesses with turnover up to ₦100 million and fixed assets up to ₦250 million (professional services excluded) are exempt from VAT registration and charging (Forvis Mazars, March 2026).
Cost of goods sold and gross profit
Cost of goods sold is the cost of what you actually sold: opening stock plus purchases less closing stock. Stock is valued at cost, under IAS 2 at the lower of cost and net realisable value. Gross margin (gross profit ÷ net sales) shows whether your pricing covers what you buy. A sudden fall usually means prices did not keep up with supplier costs, or stock went missing. See how to calculate cost of goods sold.
Operating expenses and operating profit
These are the costs of running the shop whatever you sell: rent, staff, power, transport, charges. Depreciation spreads the cost of equipment over its useful life; no cash leaves in the month. Operating profit shows whether the shop itself makes money before financing decisions.
Interest, tax and net profit
Interest is the cost of borrowed money. Tax depends on the legal form. A company pays company income tax at 0% if it is a small company and 30% otherwise, under s.56 of the Nigeria Tax Act 2025, and PwC notes a 4% development levy for companies other than small ones. A business name pays no company tax; the owner pays personal income tax on the profit.
Accounting profit is not taxable profit
The P&L follows accounting rules; the tax computation then adjusts it. Under s.21 of the Act, depreciation is not deductible (capital allowances replace it), nor are fines and penalties, domestic or private expenses, or capital withdrawn by the owner. If you paid a traffic fine from the shop account, it reduces accounting profit but is added back for tax.
What a P&L does not show
- Cash in the bank. A profitable month can still leave you short if customers owe you money or you bought extra stock.
- Money you took out as drawings, which reduces capital, not profit.
- Loan repayments of principal; only the interest is on the P&L.
- The value of stock, equipment and debts at the end of the month; that is the balance sheet.
Reading it in five minutes
- Compare gross margin with last month and the same month last year.
- Express each running cost as a percentage of net sales and look for the one that moved.
- Separate one-off items, such as a generator repair, from regular costs.
- Check stock write-offs; a rising figure points to shrinkage or expiry.
- Look at net margin and ask whether it covers your own pay and a reserve; see what margin to aim for and gross vs net profit.
Common mistakes in small-shop P&Ls
- Guessing closing stock instead of counting it. Every naira of error in the count goes straight into gross profit.
- Putting the owner's household spending through the business as expenses, which understates profit and is disallowed for tax.
- Recording equipment purchases as running costs in the month bought, instead of spreading them as depreciation.
- Leaving out costs paid in cash, such as market levies and loading fees, which overstates profit.
- Mixing loan repayments into expenses; only the interest belongs on the P&L.
- Comparing months of different lengths or with festive trading without noting it.
Where Pryme fits
The Finance agent on a Pryme Business Account can prepare a monthly P&L draft from your account transactions for you or your accountant to review and approve.
Questions people ask
What is a profit and loss statement?
A report for a period showing sales, the cost of what was sold, running costs, interest and tax, ending with net profit. It is also called an income statement.
What is the difference between gross profit and net profit?
Gross profit is sales less cost of goods sold. Net profit is what remains after running costs, interest and tax are also deducted.
Why is my business profitable but I have no cash?
Profit counts sales when earned and stock when sold. Cash can be tied up in customer debts and unsold stock, or taken out as drawings and loan repayments, none of which appear as P&L costs.
Does a small business in Nigeria need a P&L?
Yes. The Nigeria Tax Administration Act 2025 requires every company to file a return yearly, and a small company may submit attested statements of account instead of audited accounts. A business name owner also needs profit figures for personal income tax.
Sources
- Nigeria Tax Act 2025 (gazette text: s.15, s.20, s.21, s.56) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, taxes on corporate income (last reviewed 29 May 2026) · accessed Oct 2026
- Forvis Mazars: Nigeria Tax Act 2025, VAT key business changes (16 Mar 2026) · accessed Oct 2026
- IFRS Foundation: IAS 2 Inventories (2024 issued standards) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.