Jul

31

Reading the Profit and Loss - Part 1 - Overview

Filed Under Internet Marketing 

small business accounting software

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 statement reports how much you’re selling, how much you’re spending and how much profit you are or aren’t making over a specific time period.

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. The amount of cash you have is not to be found in the profit and loss. Sales generate cash sure but profit is an entirely different matter and is never going to be an indicator of how much cash you have. The balance sheet tells you how much cash you have.

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.To be clear, the Income or Revenue accounts record the transactions resulting from Sales you make.

So if you’re reporting by month and in March you invoiced or sold 1,000 worth of Products or Services. The balance on this line for March 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

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