Introduction to the Profit and Loss

The Profit and Loss report displays the total sales and expenses of your business for a specified period. It deducts the associated costs from the sales to reveal the remaining profit. This report is also known as an Income Statement or Profit and Loss Statement.

Why is it important?

• It shows if your business is making or losing money
• It shows where you're making money
• It shows you how much you're spending and what's 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 the Cost of Sales. Represents the cost to you of selling your goods and services, such as 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, also referred to as Expenses or Indirect Expenses, differ from Direct Expenses in that they are not directly associated with a specific cost object, such as a service or product. Instead, they represent costs necessary for the general operational expenses of a business.

Some examples of overheads are

• Wages for non-sales employees
• Rent
• Repairs
• Bills for utilities etc
• Advertising and marketing
• Travel costs

Gross profit

The amount of money you make from your sales is less your direct expenses.

Net Profit

The amount left over when after paying all your bills and other expenses.

Related Solutions

More about the Profit and Loss

How to run your Profit and Loss