What is a Profit and Loss Report?
A Profit and Loss Report (P&L) is a report that shows your total Income and your total Expenses in a specific period of time. It’s a really useful report as it shows you your net Profit (or loss) based on your Income & Expenses, and that can be used to come up with some cost cutting strategies!
Profit & Loss Reports go by a few names, so it might be referred to as an “Income Statement”, a “Statement of Operations”, a “Statement of Financial Results” and “Income & Expense Statement”. Let’s stick with Profit & Loss Report.
You can run your Profit and Loss Report by doing the following:
- Click on the Reports tab
- Click on Profit and Loss.
There are some things you’re able to change when running the Profit & Loss Report:
- Period - You can view the Profit & Loss Report in either Yearly (12 months) or Quarterly (3 months) periods
- Ending - The last month that will appear in the report.
- Revenue - You can run the report based on Collected (Cash-based), which will look at all money you’ve actually received (and the date you received that payment), or Billed (Accrual), which will show you all non-Draft Invoices sent out (paid or not), using the Invoice date.
- Expenses - You can choose to include or exclude taxes incurred for your Expenses.
- Note: this option only toggles Expenses, as taxes are never included in the Income section of a profit and loss report.
The Income section of the report will display your monthly sales.
The Cost of Goods Sold will display the sum of Expenses that have been re-billed to your Clients. Think of your Costs of Goods Sold as any Expense that directly generated Income for you. If you have an Expense category that is not directly assigned as a billable Expense to your Client (but needs to be calculated as an overhead cost), you can click on the “edit” button to include those Categories.
The Gross Profit will calculate the net profit (or loss) based on the revenue and cost of good sold.
The Less Expenses section will display other Expenses that are not considered as Costs of Goods. The sum of your monthly Expenses are easily viewed in the Total Expenses row.
Net Profit is the total amount earned (or lost) after Expenses. It is worked out by subtracting your Total Expenses from your Gross Profit.
How does the Profit & Loss Report handle multiple currencies?
If you’ve sent Invoices in multiple currencies, the P&L Report will break down your Sales by currency, automatically applying an Exchange Rate. That Exchange rate is an average for the report period, taken from the Bank of Canada.
Because Deposits are made to our prior to the delivery of goods / services (in most cases), they are not initially recorded as Income on this report. Once your Client has made an additional payment towards the remaining balance of the Invoice, all payments will be displayed on this report as Income
Sales Taxes are not included in the Profit & Loss Report, so you don’t overstate your Income. This information can be pulled from the Tax Summary report and your Invoice Details report.