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About this lesson
In this lesson, we'll discuss how to locate the profit and loss report and review what is seen there.
Exercise files
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Profit and loss introduction61.2 KB Profit and loss introduction - Solution
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Quick reference
Profit and loss introduction
The profit and loss report is also called the income statement. This is a summary of the income and expenses for a given period of time.
When to use
You'll want to review the profit and loss as one of your tools to keep an eye on the health of your business. But also to plan by looking back at historical income and expense trends.
Instructions
Locating the profit and loss:
- In the left hand menu, click on the word reports
- In the favorites box, click on the text profit and loss (note: if you click on the star, this report will no longer be in the favorites box)
Reading the profit and loss:
- The profit and loss comes in two parts: income and expenses
- There are usually two kinds of income:
- Income that is earned as a part of normal operations of the business
- Other income which is income collected outside of the normal operations of the business, an example of this is interest earned on your savings account balance
- There are usually have two kinds of expenses:
- Cost of sales which is the cost of the products or services you've sold. You might also see this called cost of goods sold or cost of labor.
- Expenses that are a part of normal operations of the business
Hints & tips
- The profit and loss report is a snapshot in time, it is not a running balance.
- The total net income or net loss does not represent the balance in your checking account.
- 00:04 In this video, I want to talk to you briefly about what the profit and loss is.
- 00:09 The profit and loss is also known as the income statement.
- 00:13 And it's really just a summary of the income and the expenses for
- 00:16 a given period of time.
- 00:18 Let me show you what it looks like in QuickBooks.
- 00:21 On the left hand side, we're going to click on reports And
- 00:26 then we're going to click on the text Profit and Loss.
- 00:31 When you look at the profit and loss, I can see I have various income.
- 00:35 I have some cost of goods sold.
- 00:37 I have some expenses and they have a net income on the bottom.
- 00:43 There's a couple of things that I want to point out.
- 00:45 We're going to start with the net income.
- 00:48 We don't have $34,000 in the bank.
- 00:53 The net income represents the net income for this period of time.
- 00:56 Our bank balance represents the running balance from the beginning of time.
- 01:01 Over here when I look at the income, I can see I have $39,000 worth of income.
- 01:06 I can see at these various categories where the income gets logged.
- 01:11 One of the things that I have is Truck Rental Income.
- 01:14 I know that in my business, I sell truck rental in 30 minute increments.
- 01:19 I also have Training Income.
- 01:21 I know in my business, I sell race car training in increments of two hours,
- 01:26 four hours, and eight hours.
- 01:29 When I look at the Truck Rental Income, I know that all it is just when I
- 01:33 picked 30 minute truck rental and sold that to somebody.
- 01:36 But when I look at Training Income, I don't know how much of this training
- 01:40 income is two hours, four hours, and six hours.
- 01:43 But that's okay because there's a different place to get that detail.
- 01:47 What I like about the profit and loss is it's a nice summary.
- 01:50 I can just see at a glance how are things going for a given date?
- 01:55 So at the top I've got main income, in the middle I've my cost of goods.
- 02:00 My cost of goods is the money that I spent to buy the thing
- 02:04 that I sell to my customer.
- 02:06 So in this example I have $2500.
- 02:08 If I click on it, I can see what's happening behind the scenes.
- 02:14 I can see that I spent money at candy R Us.
- 02:18 So let me go back to the report summary and
- 02:20 talk to you about what this really means.
- 02:23 I spent $2,500 at the candy store so
- 02:27 that I could then sell that candy to my clients.
- 02:30 I sold the candy to my clients for $4,000.
- 02:34 It cost me $2,000 to buy the candy I sold.
- 02:38 The cost of the goods or the cost of the candy I sold was $2,500.
- 02:44 If I take my 4,000 minus my 25, that's going to give me a net income.
- 02:49 But really to get my net income, I'm adding all the things I sold
- 02:53 minus all the cost of the things I've sold, minus all my expenses.
- 02:58 When it goes a little further down from cost of goods sold I have gross profit.
- 03:02 So my gross profit for this business is $36,000.
- 03:06 What that means is I had to spend $2,500 in order to collect this 4,000.
- 03:13 So after I take into account all the money I had to spend in order to make my sales,
- 03:18 this is how much money my business has for gross profit.
- 03:23 Now I have my expenses.
- 03:25 Some of these expenses are going to be fixed.
- 03:27 Maybe I have rent expense, that's just is what it is.
- 03:30 Some expenses I can kind of fiddle with like
- 03:33 I can buy more in less office supplies.
- 03:36 Once I record all my expenses the number I have left is my net income or
- 03:40 my net profit, so gross and net.
- 03:45 Any of these numbers you can click on the number and
- 03:48 see what's happening behind the scenes.
- 03:50 Any of these things if you said like to see more, you can click on that too.
- 03:55 If you're ever googling this, the term that you're looking for is drill down.
- 04:00 When you click on them, what you're doing is you're drilling down within the report.
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