How familiar are you with the report commonly called a profit and loss statement? You may also know it by one of its many other names: income statement, earnings statement, revenue statement, operating statement, statement of operations, or statement of financial performance.
By whatever name you know it by — know that it is vital to your business. Let’s break down exactly what a profit and loss statement is, and how it can help you achieve your business goals.
Profit And Loss Statement: Defined
A profit and loss statement is a report that compares the total income of a business against its debt and expenses. It indicates the financial health of a company based on three things:
Its ability to generate income through sales
How well it manages expenses
Does the company sustain a healthy profit margin?
If you use Quickbooks Online, you can customize the report. For example, you can select what kind of data you want on the report, add or delete columns, and more. You can even personalize the font and style of the report.
What’s Its Function?
An important aspect of running a business is keeping track of your business finances, and this is where a profit and loss report comes into play. Expenses specifically related to your business are something you need a clear picture of at all times. Aside from tracking how your business is performing financially, a profit and loss statement and the information found in it will serve as a basis for:
Developing realistic sales targets
Setting prices
Revealing how expenses impact profit
Forecasting growth potential
Developing a tax strategy
Attaining loans and investors
Potential lenders and investors will demand a profit and loss statement before they will consider getting involved with your company. They will look at your net income compared with your expenses to make sure your business is financially healthy enough to be on the receiving end of one of their loans or investments.
Of course, having an accurate profit and loss statement depends on having accurate bookkeeping.
Tax Management
The information found in your profit and loss statement will be very important when it comes to determining your tax liability (and helping reduce it!).
It’s advisable to review your profit and loss statement every month to ensure you have a clear picture of where you stand financially and where you stand from a tax perspective. Some items on your profit and loss may not be deductible from a tax standpoint, so we recommended working with a tax professional.
Contact Redmond Accounting
We understand that accounting can be tedious and overwhelming, and that’s why we’re here — to help! Whether you have questions about profit and loss statements, checklists, or technology, or would like your accounting done for you, we’ll assist you every step of the way. Schedule a consultationto find out how we can best support your accounting needs.
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