The Profit & Loss Report
Whether your business has 3 or 3,000 employees, the profit & loss report is an essential tool for all management teams. This report will give you the best picture of your business’ performance over a given period of time. It lists revenue, cost of goods, gross profit, expenses, and net income based on the chart of accounts specific to your company.
Why is understanding my Profit & Loss important?
Think about your business like you would a household - you must make more money than you spend to keep the business (or household) open and thriving. Instead of reviewing income and expenses on a chronological timeline as with a bank statement, the Profit and Loss report generated by a reputable software like QuickBooks condenses this information into categories for a specific time period (week, month, quarter, year, etc.). Regularly reviewing your Profit and Loss report is the best way to ensure you are aware of revenue trends and aren’t overspending on variable expenses. Of course, the Profit and Loss report is only as good as the data you are feeding into your accounting system - if you have categorization errors, you won’t be able to accurately pinpoint areas which need improvement.
Profit & Loss Glossary
Revenue is the accounting term for all money the business has received in the course of conducting business.
Cost of Goods
Cost of Goods is the accounting term for money the business has expended on direct costs for producing their product or service.
Gross Profit is the accounting term for Revenue less Cost of Goods.
Expenses (aka G&A or Operational Expenses) is the accounting term for money the business has expended on everything except Cost of Goods. These can include rent, advertising, utilities, payroll, merchant fees, and more.
Net Income is the accounting term for Gross Profit less Expenses. This number flows through to your Balance Sheet report.