About the Profit and Loss Report – Part 1 – What is it for?
If you are running a small business or using small business accounting software it’s vital that you master reading and understanding your profit and loss statement. And if you are stuck You will find videos on Youtube in the Small Business Heroes channel to help you understand this report or statement.
The profit and loss reports the activity in sales, expenditure and profitability over a specified period of time.
The Profit and Loss or P&L is often referred to as the Income statement, it tracks and reports the financial activity of your business over a period such as a month or a quarter.
I am going to give you a brief and basic explanation to help you learn, read and understand your Profit and Loss.
I will walk you through the format and order in which a profit and loss report is displayed by most small business accounting software
I will walk you through the simple mathematics in the profit and loss that result in the bottom line or how much profit you are and are not making.
Just one important point before I begin. Golden rule – never ever think you can tell how much profit you have by looking in the profit and loss. It is perilous to assume that because you made a profit that you have sufficient cash. The cash balances are reported in the balance sheet.
Always first is Sales (in other words how much you’ve sold),it’s also known as Income or Revenue and is always shown at the top of the profit and loss report generated by your small business accounting software The balance or amount on this line is derived from your Income Accounts.The past history of Revenue or Sales transactions are always recorded in the Income accounts.
So if you’re reporting by month and in March you invoiced or sold 1,000 worth of Products or Services. The balance in March will be 1000.00.
The lines in the top section present the resulting balances from transactions that occurred in the time period specified by you
