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The Profit and Loss...the 1st of the 3 Financial Statements

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:


This represents everything in terms of what you are EARNING... 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:

⚫ REVENUE - what is being earned via sales

⚫ COGS - the cost to deliver your product or service

⚫ GROSS PROFIT -your profitability in carrying out your product or service (Revenue - COGS)

⚫ 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

⚫ NET OPERATING INCOME - Gross Profit less Operating Expenses

⚫ OTHER EXPENSES - expenses that are incurred that are not core to the business. Common ones can be depreciation and interest expense

⚫ OTHER INCOME - money earned that is not core to the business. Common ones can be interest income, or cash back from credit cards

⚫ NET OTHER INCOME - Other Income - Other Expenses

⚫ 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


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