Kasfia Rashid - "Money Matters with Kash the Bookkeeper"
Hello! Welcome to Money Matters with me, Kash the bookkeeper, the accounting show with NO NUMBERS! Accounting is the language of business. If you own a business or you are thinking of starting a business, you need to know your numbers and how to use them!
Money matters is all about the fundamental basics of the accounting language, Assets, Liabilities, Owner’s Equity, Revenue and Expenses. These building blocks of business can be arranged and rearranged for a customized experience. Once you understand the basics of any language it is much easier to communicate using that language.
We are almost at the end of our accounting tour! Only a few more concepts remain, need to catch up? Click here for all of the prior shows: https://feed.pod.co/money-matters-with-kash-the-bookkeeper
We have made it out of the Jungles of Operating expenses, and with it, comes the last leg of our accounting journey. We have talked all about revenue, cost of goods sold, operating expenses and “other” income and expenses. If we combine all of those concepts and line them up in order, you arrive at the arguably the most talked about financial statement in history!
* cue the drums * LADIES AND GENTLEMEN, BUSINESS OWNERS FROM AROUND THE WORLD, I PRESENT TO YOU, THE ONE, THE ONLY, THE BIRTHPLACE OF THE TAX RETURN, THE PROFIT AND LOSS STATEMENT!!! *Insert applause track here*
Show Objectives - The Why
The Profit and Loss statement ( PNL ) for short is the most talked about financial statement. It houses the Revenue, Cost of Goods Sold, and Operating Expense transactions. From our last accounting equation Revenue- Cost of Goods Sold- Expenses = Net Income. Net Income is also known as taxable income (spoiler alert** the numbers aren’t always the same). This financial report is the one investors and key financial persons in a company look at to answer the questions: how much did we make, how much did we spend, and where can we do better next time around?
Using the Profit and Loss statement, business owners can generate powerful ratios to supercharge their growth. Ratios like Revenue over Expenses (Current ratio) , Profit Margin ( Net income ( after tax) over Sales), Operating Margin ( Operating Income over net sales) to name a few. These ratios help business owners project revenue, control costs, and attract investors!
Lastly, the Profit and Loss statement is the birthplace of the tax return! It’s the chicken that came before the egg.
Key Issues - Owner Perspective:
The Profit and Loss statement is the Cinderella of the accounting ball. Glittery, an amazing dancer ( anyone know where she learned? ) and disappears at midnight (on December 31st each year). It has all of the major transactions of a business and can be prepared for any length of time. Usually the Profit and Loss statement is displayed in whole numbers and by using multiple reports, trends can be compared across several time periods.
Having up to date and correct PNL reports allows a business owner to start budgeting expenses, projecting revenue, and planning their growth. PNL statements should be reviewed each month with your accounting professional to ensure all applicable transactions are reflected correctly. This will make it much easier at the end of the year to know exactly how much taxes the business and owners will each owe.
What You Need to Know - The What
The Profit and Loss statement is a financial statement that summarizes the revenues, costs, and expenses a business incurred during a specified period, usually a fiscal quarter or year. The P&L statement is sometimes called income statement. The records found here have information about the business’s ability to generate profit by increasing revenue, reducing costs, or both.
The P&L statement is one of three financial statements every public company issues quarterly and annually, along with the balance sheet and the cash flow statement. Together they complete a company's financial picture.
Having an easy to understand PNL statement to provide a tax preparer ensures the business taxes are handled timely and efficiently. Yes, taxes can be prepared without financial statements, but the costs ( time , stress, and larger tax bills) are not worth the headache! Invest in yourself and your business by automating the process well ahead of tax time!
A quick Google ( or Yahoo finance ) search will yield several examples of what a Profit and Loss statement should look like! Here’s one of my favorites!
What You Need to Do - The How
Keeping a Profit and Loss statement up to date means having every single business transaction accounted ( pun intended) for and categorized correctly. Since so many of the ratios and comparisons made using this report factors heavily into the business’ decisions. The profit and loss statements helps a business owner answer the pressing questions of their business, from payroll allocation to revenue generation, the profit and loss statement is the treasure trove of accounting. No wonder it’s so popular!
Keep your profit and loss statement error free by following these simple tips:
Previous: Expenses: Anchor or Submarine?
Next: The importance of bookkeeping
Written by Kash the bookkeeper
Check out the last QuickBooks Online Tutorial you will never need here! https://kashthebookkeeper.com/master-your-bookkeeping-in-60-minutes/
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