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PSR is the Premier League financial regulations; profit and sustainability regulations and its main concerns is the level or loss made by a Club in a three year period. For more information see blog 2 which looks at this in more detail.
Profit is in essence the difference between income and expenditure. The profit is when the income exceeds the expenditure, the alternative is a loss. In accounting this is not based on cash movements but on the 'accruals' concept.
Sustainability is a term for the ability to continue over the foreseeable future. In accounting it is often called going concern. Clubs like companies will prepare their financial statements on a going concern basis, i.e. on a basis that they continue operating, unless it is inappropriate to do so. Financial sustainability is to ensure the Club exists not just now but into the future.
The accruals basis considers not just the cash inflow sand outflows in the period, but what income and expenditure should have been included in that period. So for example, if an expense is incurred after the year end, but relates to that year, it is accrued so that costs is accounted for in that year. Another example would be receipt of season ticket income in the current year but relates to the next season, this income would therefore be deferred, so it would be correctly recognised when the service is provided not when the cash is received.
The purchase of a player by a Club is considered to be an intangible asset, as the benefit of the financial outlay will last beyond the current period, therefore, this cost is not an expense when considering profit. The outlay sits on the balance sheet and is therefore an asset of the Club. The outlay for a player is an asset which is consumed by the Club over the period of that player's contract, say five years. Each of those five years the Club will recognise amortisation that reduces the value of the asset and creates an expense against profits.
Amortisation is an expense to the income statement (or profit and loss account). This is not a cash outflow, as it is a book entry to account for the consumption in value of an intangible asset. In football terms amortisation is usually the recognition of the annual charge over the players contract of their transfer fee.
Income statement or profit and loss account is a prime statement in a set of financial statements. This sets out the income and expenditure of the Club, ending with the profit or loss generated in that accounting period.
The balance sheet is a prime statement in the financial statements. This shows the Clubs assets, split between fixed assets and current assets, its liabilities again current and non current, coming down to the net asset (or liability) position. The net assets should then balance to the equity, which is the share capital and the accumulated result of the profit and loss generated over the years of existence.
Clubs have a financial year and for each financial year they have to prepare and submit financial statements. Most Club's have a 30 June year end which aligns with the end of the football season. Clubs will have nine months in which to prepare and submit their financial statements, so the financial data is always historic in nature.