Introduction to the Profit and Loss
The Profit and Loss report shows your business’ sales and expense totals over a given period. It subtracts the associated costs from the sales, to show you what’s left as profit. The Profit and Loss report is sometimes called an Income Statement or Profit and Loss Statement.
Why is it important?
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It shows if your business is making or losing money.
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It shows where you're making money.
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It shows you how much you're spending and what on.
What's on your profit and loss
Sales
How much you've earned through selling goods or services or from other income streams.
Direct Expenses
Also called Cost of Sales. Represents the cost to you of selling your goods and services, such the cost of raw materials, staff, or purchasing a product to resell.
For example, you will spend money on food and staff if you own a restaurant.
Overheads
Overheads are also known as Expenses or Indirect Expenses. Unlike Direct Expenses, Overheads are not directly related to a specific cost object like a service or product. They are costs that are needed for the general running expenses of a business.
Some examples of overheads are
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Wages for non-sales employees
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Rent
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Repairs
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Bills for utilities etc
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Advertising and marketing
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Travel costs
Gross profit
The amount of money you make from your sales less your durecy expenses.
Net Profit
The amount left over when after paying all your bills and other expenses.
