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.
Here I share with you how the profit and loss is generally presented in reports created by small business accounting software
I will also discuss the mathematics used in the profit and loss to express the bottom line or how much profit the business is making.
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. Its not safe to assume that profit generates cash, profit is just the result of financial activity, it doesnt indicate how much cash you have on hand. The balance sheet tells you the amount of cash you have available and the financial position of your business.
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 financial activity resulting from what you have sold are 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
