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About this lesson

We discuss common mistakes found on the profit and loss report and how to fix them.

Quick reference

Profit and Loss Report

No matter how careful, we are all human and sometimes we assign the wrong account to transactions. This lesson will show you how to review your profit and loss with the intention of finding transactions that need to be corrected.

When to use

I recommend you dedicate 15 minutes a month to reviewing your year to date (YTD) profit and loss and that you do this after reconciling the bank accounts. A quick double check will give you 12 chances each year to catch any mistakes and make your annual tax prep a bit easier because you'll be confident about your records. 

Instructions

Reviewing the Profit and Loss by month:

  1. Generate the profit and loss summary report
  2. Modify the report to display columns by month
  3. Review each row
    1. You are looking for peaks and valleys
    2. You are looking for totals that seem wrong or that you're unsure about
  4. Anytime you see a row that requires further investigation, click on that number you're questioning. This will give you a list of transactions that when added together, equal that total you were just looking at. 
  5. Anytime you find a transaction that has the wrong category assigned to it, click on the transaction and fix the category (often found on line 1)

Reviewing the income by name:

  1. Generate the profit and loss report
  2. Click on the total income (this will be a bold number)
  3. Modify the report to group by "name"
  4. Run the report
  5. You should see each client name with their transactions under their name
  6. Take a look at the column called account (this is the income account for each line on the invoice), does this all look about right? Do you see sales going to an income account that you are not longer using?
  7. Take a look at the column called amount, does this all look about right? Maybe you don't remember every sale but you would notice if a client had two of the same sales on one date.

Reviewing the expenses by name:

  1. Generate the profit and loss report
  2. Click on the total expense (this will be a bold number)
  3. Modify the report to group by "name"
  4. Run the report
  5. You should see each vendor name with their transactions under their name
  6. Take a look at the column called account (this is the expense account associated with this transaction), does this all look about right? In most businesses, money paid to a vendor is always assigned to the same expense account. (Most, not all!)
  7. Take a look at the column called amount, does this all look about right? Maybe you don't remember every purchase but you would notice if a vendor had two expenses of the same amount on a given date.

Hints & tips

  • This feels like a lot of work but after you get comfortable, this will really take you less than 15 minutes and it's a good habit to be in.
  • If you outsource your bookkeeping (to anyone!), I encourage you to do this on a regular basis. 
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  • 00:04 In this video, I want to talk to you about spotty errors looking at your profit and
  • 00:09 loss report.
  • 00:10 On the left hand side of QuickBooks,
  • 00:13 I'm going to have you click on the word Reports.
  • 00:16 When you do this, it's going to bring up a list of your reports.
  • 00:19 Your profit and loss reports is likely in the Favorites box.
  • 00:23 We'll click on the text Profit and Loss.
  • 00:26 When the profit and loss report opens, we're going to see the profit and loss for
  • 00:31 a given date range.
  • 00:32 The date range is right here.
  • 00:33 In this case, it's January 1st to August 13th.
  • 00:37 If we scroll up, we can change the date range.
  • 00:40 What I want to have you do is a couple things.
  • 00:43 If you scroll up to where the date range is displayed,
  • 00:46 there's a section that says Display Columns By.
  • 00:49 And I'm going to have to change it from Totals Only to Months.
  • 00:53 On the right hand side, click on Run Report.
  • 00:56 Now, I want you to look at the profit and loss and just say, do I see any dips or
  • 01:00 valleys?
  • 01:01 Oftentimes, this is where you'll find mistakes.
  • 01:04 So, when I look at, for example, the office supplies.
  • 01:07 I spent $200, $10, $100.
  • 01:11 I can say these are probably regular subscriptions and
  • 01:14 then periodically maybe an annual subscription.
  • 01:18 Over to the right, I suddenly have a spike.
  • 01:20 I have a $1200 payment of something in office supplies.
  • 01:25 If you're not sure what that is, I'm encouraging you to click on the number.
  • 01:29 When you click on the number, you're going to be able to drill down and
  • 01:32 see if the number is behind the number.
  • 01:35 So when I look at this example, I can see all right,
  • 01:38 that's the paper I've ordered and the two office chairs I ordered.
  • 01:43 So in this case, I didn't spot a mistake, but the goal of this is to look and
  • 01:47 see, have I made a mistake?
  • 01:48 And spot them if I have made them.
  • 01:50 I'm going to click on Back to report summary.
  • 01:54 After I get done looking for any dips and valleys, any anomalies that I can account
  • 01:59 for, then what I want to look at is, do I have any negative numbers?
  • 02:04 It's possible that I could have a negative number that's valid.
  • 02:07 Maybe I bought something from the store, and
  • 02:09 then I returned it the next month, then I got my money back the next month.
  • 02:13 Otherwise, I really shouldn't see negative numbers.
  • 02:17 In this example, I don't see any.
  • 02:19 So I'm feeling reasonably confident with my books.
  • 02:23 The last thing I want to do is I want to deep dive into my income and
  • 02:28 really look at it.
  • 02:29 And then I want to look at my expenses and
  • 02:31 just kind of gauge to make sure they all make sense.
  • 02:35 One of the things that I see people do by mistake
  • 02:38 is accidentally post transfers from savings to checking as an income.
  • 02:43 Or apply money that came from the owner's personal bank account into the business
  • 02:47 as income.
  • 02:48 So what I really want to do is just make sure we didn't double up on anybody's
  • 02:52 sales.
  • 02:53 And then we didn't accidentally turn our own money into income when
  • 02:57 it's really not.
  • 02:58 So the way we're going to do this, is we're going to pull up the profit and
  • 03:01 loss and we're going to click on the number underneath the total for income.
  • 03:05 So you can pull up this monthly view like we have here, but you don't have to.
  • 03:10 You can just leave it the way it shows up when you first open the profit and loss.
  • 03:14 Click on the total number for income.
  • 03:18 When you do this, you're going to see a list of all the income.
  • 03:21 I want you to take a look at this and apply logic and
  • 03:24 to say, okay is anybody here doubled up?
  • 03:27 For example, if I have deposits here, are any of these deposits also the same thing?
  • 03:33 The exact same thing as an invoice or a sales receipt I previously have created.
  • 03:38 Sometimes when we're first using QuickBooks, we make mistakes and
  • 03:41 we accidentally log incoming money as both a deposit and an invoice.
  • 03:47 When I look at the invoices in the sales receipts, I just want to look and
  • 03:50 make sure I didn't accidentally record the same thing twice.
  • 03:54 What we can see or
  • 03:55 not see in this case is we can't really see the numbers on the right.
  • 03:59 So in the upper left hand corner,
  • 04:01 I might click the hamburger to collapse the green menu.
  • 04:04 And now I can see more of the numbers on the right.
  • 04:07 I can also, if I want, click on the gear and hide some of the columns.
  • 04:12 So I'm going to hide the number column and I think I'll also hide the memo column.
  • 04:16 All right, so now I'm looking through stuff and
  • 04:20 I'm really just looking to see, have I doubled anything up?
  • 04:24 You're going to know your business, and so you're going to know quickly, for example,
  • 04:28 if Cheesy Chester bought two team building sessions on the same day.
  • 04:34 I don't know your business.
  • 04:35 So if I saw this, I would just take a look at it and ask you.
  • 04:39 I would say it seems unlikely that on 8/12 that you send an invoice to Cheesy Chester
  • 04:44 and on 8/12 you made a sales receipt for Cheesy Chester.
  • 04:47 Both of them for the same $9,000 sale.
  • 04:51 When you're looking at this, you're really just looking to spot mistakes.
  • 04:55 Mistakes aren't a reflection of your abilities.
  • 04:57 Mistakes are just things that happen to us as humans.
  • 05:00 The reason we care about the mistakes is that we don't want to report and
  • 05:03 pay taxes on more money than we've actually earned.
  • 05:07 So let's take a look through here.
  • 05:08 If you see any mistakes, realize you know what?
  • 05:11 That's mistake, I need to fix it.
  • 05:13 So for Cheesy Chester for example, we'll grab one of these.
  • 05:17 We'll click on the number,
  • 05:17 and then we'll decide which one of these things can we delete.
  • 05:22 Once we found the one we want to delete, we'll click on More and then Delete.
  • 05:27 I'm going to click on Back to report summary and
  • 05:29 I want to show you how to look at your expenses.
  • 05:31 You can click on the dollar amount to the right of total expenses.
  • 05:36 And when you do this, you can see what's happening.
  • 05:38 So in the category of Advertising and Marketing, I have these expenses for
  • 05:42 Canva, over to the right of these dollar amounts.
  • 05:46 What I'm most concerned about is when I look at the expense category, and
  • 05:50 I look at the name.
  • 05:53 This is where name becomes really helpful, the vendor names.
  • 05:56 Does it make sense?
  • 05:57 So let me just look through here and I'm saying, yeah, these all make sense.
  • 06:01 These all make sense.
  • 06:03 What you're looking for is for example,
  • 06:05 do you see a trip to Starbucks in office supplies or software?
  • 06:11 Do you see a trip to McDonald's in parking?
  • 06:14 Really just take a look at these expenses on the left,
  • 06:16 take a look at these names on the right.
  • 06:19 And say, does this make sense?
  • 06:21 If it doesn't make sense, if you're like, that's in the wrong spot.
  • 06:25 Like practice ignition as a software, you would click on that and
  • 06:29 you would say, thank you for opening up the expense form.
  • 06:32 I'm going to change line number one to be the expense that I
  • 06:35 meant to use in the first place.
  • 06:38 No big deal, and then click Save and Close.
  • 06:42 All right, so we will go back to the profit loss and
  • 06:45 I'll show you what that looks like.
  • 06:47 You can now see the year software is increased and
  • 06:49 your office supplies have decreased.

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