Understanding a Profit Loss Report
Accounting is hard. Even if you aren’t part of an accounting team, you may still get reports from them and many are complex and difficult to understand. Profit and Loss reports can help you to better understand the total income and total expenses for a period of time. It is most useful for finding ways to cut business costs. We’ve taken the Profit and Loss report and broken it down into easy to understand terms.
For starters, some accounting departments call the Profit and Loss report an income statement, statement of operations, financial results statement, or income and expenses statement. There are several aspects of the report that can change depending on what knowledge you hope to gain from this report and they are:
- Time- You can view the P & L report yearly or quarterly and can also compare them against other time frames, such as this year vs. last year.
- Ending– The last month that appears on your report can vary from company to company
- Revenue– Reports can be run on different types of revenue, from collected to billed
- Expenses– You may choose to include or exclude certain expenses like taxes
Now that you understand the factors that can change, let’s go over the different sections that may be included in the P & L.
- Income– This section will display all of your monthly sales
- Costs- This section will display the sum of expenses that have been billed out
- Gross Profit- This calculates your net profit or loss based on the revenue and cost of your sales
- Less Expenses- Expenses that are not associated with costs of goods
- Total Expenses- The sum of all of your monthly or yearly expenses
- Net Profit- Your total earned or lost after expenses, this is calculated by subtracting your total expenses from your gross profit
No two accounting departments may run the same exact report and there could be numerous other line items and factors. But understanding these very basic terms and what they mean will help to take some of the guess work out of it for the non-accounting folks.
Whether you need help with the big picture financial goals of your business or you are looking for help with working out the details of your companies finances, we’re here to help. It’s never too late to get a handle on your bookkeeping and accounting and control them rather than spending another year allowing them to control you and provide you with inaccurate information. CFO Source can handle all of your accounting and business needs, just call us today!