Posts Tagged ‘business accounting software’
What is the Profit and Loss and how does it work?- Part 2 – Expenses
small business accounting software
The next section down, directly underneath the Income section and mostly in the case of folks who sell Products is the Cost of Goods line. Reports in most small business accounting software will display this as COGS
This line represents the actual costs (COGS) associated with the Products you sold in the period you report from your small business accounting software. The purpose of this line is to help folks who sell products calculate the gross margin or gross profit, in other words the amount of profit made after taking into account the costs directly associated with acquiring and selling the goods.
Subtracting the COGS line from the Income or Sales Line will give the Gross Margin. Gross Margin is often expressed as a percentage and to calculate the gross margin and express it as a percentage just divide the Gross Margin by the value of sales you made in that period. Now if you’re a Services Business life is a little more complex if you want to determine the Gross Margin you make on Services (and you should). The reports in some small business accounting software systems will help you determine this.
Visit the Small Business Heroes channel on Youtube for videos explaining the Profit and Loss and other accounting elements. Next row down under COGS you wil find the business running costs or (Operating expenses). Operating expenses details the costs of running the business over a period of time.
Expenses are often categorised into sections representing key functions such as Sales, Admin, R&D and other departments. As you can see these sections represent major functions or centres of activity in a business. These rows detail the amount of money spent in a given period.
The balances in these sections are derived from Expense Accounts and it’s really important that you know and understand that there are two major types of Expense in any business. These are Fixed and Variable expenses.
What is the Profit and Loss and how does it work?- Part 2 – Expenses
small business accounting software
In businesses that sell stock you will find a line directly below income called Cost of Goods. Reports in most small business accounting software will display this as COGS
This line represents the actual costs (COGS) associated with the Products you sold in the period you report from your small business accounting software. The objective of this line is to assist companies determine the gross margin/profit (the gross profit realised after acquisition of the stock).
To calculate Gross Margin subtract the COGS balance from the Income balance. Gross Margin is often expressed as a percentage and to calculate the gross margin and express it as a percentage just divide the Gross Margin by the value of sales you made in that period. Now if you’re a Services Business life is a little more complex if you want to determine the Gross Margin you make on Services (and you should). The reports in some small business accounting software systems will help you determine this.
Visit the Small Business Heroes channel on Youtube for videos explaining the Profit and Loss and other accounting elements. It is standard practise to the Operating Expenses (business running costs) directly below the COGS line. Operating expenses details the costs of running the business over a period of time.
You will often see the expenses section divided into categories associated with sales, marketing R&D and Administration. As you can see these sections represent major functions or centres of activity in a business. These lines contain the expenditure over a period in time.
The balances in these sections are derived from Expense Accounts and it’s really important that you know and understand that there are two major types of Expense in any business. These are Fixed and Variable expenses.
The Profit and Loss made simple – Part 1 – Simple facts
If you are running a small business or using small business accounting software it’s imperative you comprehend whats in your profit and loss statement. And if you are like me and you learn better from watching video, you’ll find some tutorials on Youtube in the Small Business Heroes channel.
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.
To help you understand the financial activities of your business, here is a step by step breakdown of how to read and understand the 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 also explain how the profit is calculated by walking you through the simple calculations that happen when the P&L is reported.
Just one important point before I begin. You cannot tell from your profit and loss how much cash you have. Profit does not equal cash period, dont ever make this dangerous assumption. The amount of cash resulting from financial activities is to be found 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.What has been sold (the sales transactions) are always stated in your Income accounts.
So if you’re reporting by month and in March you invoiced or sold 1,000 worth of Products or Services. Then this line will show a 1,000 pounds for the month of March.
Each line in this top section represents the sum of the transactions over the time period you specify when you run the profit and loss report
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
Understanding the Profit and Loss – Part 1 – Introduction
If you are using small business accounting software it’s essential that you’re able to read and understand the profit and loss statement.You will find some really informative videos on Youtube in the Small business Heroes channel that will 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 will give you a basic overview of the profit and loss to help you understand what it does and how it works.
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 also explain how the profit is calculated by walking you through the simple calculations that happen when the P&L is reported.
Just one important point before I begin. Get it clear in your mind now – The profit and loss will NEVER tell you how much cash you have. Profit does not equal cash period, dont ever make this dangerous assumption. If you want to know how much Cash you have, you’ll find this in your 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.
What has been sold (the sales transactions) are always stated in your Income accounts.
So if you’re reporting by month and in March you invoiced or sold 1,000 worth of Products or Services. The March figure for this line will be 1000.00. Each line in this top section represents the sum of the transactions over the time period you specify when you run the profit and loss report