small business accounting software
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.
What you have sold, spent and how much profit you are making in a time period is reported in the profit and loss or income statement.
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.
Here is a simple explanation of how the profit and loss report is assembled and how it’s key components work.
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. Reporting or making a Profit doesn’t automatically mean you have Cash. The cash position is always reported in the current assets section of 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.
The lines in the top section present the resulting balances from transactions that occurred in the time period specified by you
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