The Profit and Loss...the 1st of the 3 Financial Statements
Do you know what Profit & Loss is?
If you don't, you should
A Profit and Loss (Income Statement) is one of the most fundamental reports to understand for any business
and it's actually not too hard to understand...
Let's do a deep dive:
📄 PROFIT & LOSS
This represents everything in terms of what you are EARNING...
...as well as the expenses you are CONSUMING
It in essence allows you to understand profitability at multiple levels (Gross profit, Net Operating Income, Net Income)
Here are the major sections:
âš« REVENUE - what is being earned via sales
âš« COGS - the cost to deliver your product or service
âš« GROSS PROFIT -your profitability in carrying out your product or service (Revenue - COGS)
âš« OPERATING EXPENSES - All other costs that relate to your core business, but aren't necessary to carry out your product or service (IE not COGS). Common items are rent, and payroll costs
âš« NET OPERATING INCOME - Gross Profit less Operating Expenses
âš« OTHER EXPENSES - expenses that are incurred that are not core to the business. Common ones can be depreciation and interest expense
âš« OTHER INCOME - money earned that is not core to the business. Common ones can be interest income, or cash back from credit cards
âš« NET OTHER INCOME - Other Income - Other Expenses
âš« NET INCOME - Net operating income + Net Other Income
A Profit and Loss is something every business owner should understand how to read
Some companies show their Profit & Loss on the CASH basis
IE every dollar in is essentially treated as income
every dollar out is essentially treated as an expense
Most larger companies show a Profit & Loss under the ACCRUAL basis
IE every dollar EARNED is income
and every dollar CONSUMED is an expense
The 1st of the 3 Financial Statements