Profit & Loss Accounts: Are you familiar?


Back to the Basics:
 Profit and Loss Accounts

A few weeks ago, we posted a blog covering the basics of a balance sheet. This time, we will be covering the Profit and Loss accounts and what they consist of. 

Profit and Loss accounts are a component of the chart of accounts:

The Chart of Accounts is the entire run down of a business’ accounts and their balances. This keeps track of how much money your company has, owes, and what’s coming in and out. The more accurate the information is, the more useful the reports will be, therefore watch out for errors and try to be consistent as possible when assigning accounts to transactions. 

In addition, Profit and Loss Accounts, display how your business is doing over a period of time. It showcases the money that is flowing in and out over a month, year, etc. This is different from a balance sheet, for it only shows your businesses assets, liabilities, and equity at one period in time. 

Here's a run down of what the average Profit & Loss sheet would display:


Use this type of account in your Chart of Accounts
To Track
Assets
Income
The core source of money coming into your business, often divided up in to major product or service sections.
Cost of Goods Sold (COGS)
Costs directly attribute to products and services that you sell
Expense
Money that you’ve used, divided up into major types of expenditures. Purchases of assets or payments towards liabilities should be assigned to those accounts in its place.
Other Income
Money collected for something other than standard business procedures, such as interest income.
Other Expense
Money spent on something other than standard business procedures, such as corporate tax.

Of course, if you have any questions regarding this post, bookkeeping, accounting, payroll, etc. feel free to call us using the number below!



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From the makers of Quickbooks in collaboration with Real World Training

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