Jul

31

Beginners guide to the Profit and Loss - Part 2 - Expenses

Filed Under Internet Marketing 

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 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.

Head over the to the Small Business Heroes channel in Youtube for a more in depth explanation. 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.

For clarity expenses are grouped together in sections that detail the sales & marketing, general and R&D. As you can see these sections represent major functions or centres of activity in a business. Each number here represents an amount spent in a period of 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.

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