profit and loss statement

What is a Profit and Loss Statement?

A Profit and Loss Statement is a historical record of how much money you made from your business. At the top, it has your income from trading or income from sales. Below that are all the expenses  it costs you to run your business. At the bottom is a profit or loss, hence the name, profit and loss.

Now, a profit and loss is not necessarily the amount of cash that you have in your business. We earlier talked about cash versus accrual accounting. If you’re on a cash basis, then your profit and loss will show you the money you’ve made out of your business. But it doesn’t mean that’s what’s sitting in your bank account because you’ve used that money. You’ve used it to live on, you’ve used it to pay payments for cars and equipment and stuff like that.

A profit and loss statement gives you an idea of the profitability of your business. It doesn’t tell you where the money has gone. Things that you will normally find in a profit and loss are accounting fees, bank charges, cleaning, depreciation, electricity, freight, interest, insurance, hire of equipment, journals and periodicals, materials and supplies, rent, office expenses, printing and stationery, phone, internet subscriptions, all the kinds of costs that you’ve got to run your business. So income minus expenses gives you a profit. And that tells you how much money you’ve made for your business. And that’s what you’re taxed on.

If you are having issues managing cashflow in your business, reach out as we use the Profit First System with our clients that not only uses a profit and loss but also some other easy try and tried systems to manage your cashflow.

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