 QuickBooks Online 2024 profit and loss P&L or income statement overview. Get ready in some coffee because we're diving into it. We're into it. QuickBooks Online 2024. First a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, don't want to be seen with us, but that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our trust me, I'm an accountant product line. Yeah, it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are online in our browser searching for QuickBooks Online Test Drive looking for the result that has into it.com and the URL into it being the owner of QuickBooks, selecting the United States version of the software and verifying that we're not a robot. Opening up our major financial statement reports like we do every time. The reports are on the left hand side. We're in the favorites. We're going to be right clicking on the balance sheet and open link in new tab, right click on the profit and loss. This is our point of focus this time. The profit and loss otherwise known as the income statement sometimes abbreviated as the P and L right clicking on it open link in a new tab. Let's go to that middle tab. We just opened close up the hamburger. There is our balance sheet. Let's change the range up top. So we're rolling back the clock 010123 123123 and run it rolling back the clock. The wrinkles have just faded away. Tab into the right. We're going to close up the hamburger, scroll back up and we're going to roll back the clock again. 010123 tab 123123 tab. Run it to refresh it. There is our profit and loss otherwise known as the income statement sometimes abbreviated as the prop as the P and L. Now in prior sections we took a look at the balance sheet, the balance sheet being the other primary financial statement report. These are the two big ones, the balance sheet and the profit and loss or income statement most other reports being more information given on one or multiple line items of these two major financial statement reports. The profit and loss can kind of be thought of as part of the balance sheet in a sense, part of like the equity section of the balance sheet. What do I mean by that? Let's go on over to the balance sheet before we jump into the profit and loss one more time. Close up the triangles. There's our accounting equation, assets equal liabilities plus equity. That's the whole double entry accounting system right there which can be represented in debit and credit format or accounting equation format as it is here. You might be asking well there's more account categories that aren't included in here namely the income statement account categories of income and expense or revenue and expense. Where are those? How do they fit into the accounting equation if this is the entire double entry accounting system in terms of an equation? Well they're basically the income statement is part of equity because this formula represents where we stand at a point in time what the company has assets and who has claimed to those assets either third party, liability, bank, the bank oftentimes, or the owner equity which would be the shareholders if a corporation, partners if a partnership, the sole proprietorship, the owner if it's a single owner. The statement that we want to look at this time is a timing statement. This shows where we stand as a point in time and the reason we can think about that is kind of like part of the equity section is indicated by QuickBooks here that this net income is not really an account. You won't find it on the chart of accounts. It's QuickBooks basically putting the net income into the balance sheet so you can kind of see where it comes from. So in other words the total equity of the balance sheet here which is actually negative right now which isn't good but the equity is what the owner has claimed to over the business as opposed to third party liabilities having claim like the bank having claim and then the questions well how do we get to this number in the equity section as we generate our bookkeeping well you can think of it as the income statement over time meaning we have revenue minus expenses that are then rolling into the equity section basically of the balance sheet. So the income statement is kind of part of the equity section in other words this net income is representing the entire income statement for the prior year in one lump sum number if I was to change the date one date up it'll roll into net income. Let me show you that if we bring this up to the next day then that amount rolled into the retained earnings. Did I say net income? Net income rolled into retained earnings. So basically the retained earnings then is all of the income from the income statements that have been rolled into the balance sheet which have not yet been distributed to the owners in the form of if a sole proprietorship draws meaning the owner hasn't taken them out yet or if it were a corporation in the form of dividend dividend distributions. So that's how it's linked to the balance sheet. So the balance sheet is where we stand as a point in time but this equity section we want more detail about it we want to know about the earning power of the business because that's the point of the business that's what it's here to do it's here to generate revenue that's why we have it people that's why we have it and it looks like it's not doing a great job because we've got negative equity right now so let's get on the ball let's improve let's make some improvements here because this isn't working out but in any case let's go to then the profit and loss this is the is the profit and lost and so what are the categories of the profit and loss well at its most basic level which you might call a single step income statement it would simply be income and expenses let's pull up a trusty calculator here so you just got increases and decreases income and expenses are the major major categories that we have so we've got the 10 277 minus now cost of goods sold is another subcategory along the way and that's when we go from a single step income statement which would have just two line atoms income minus expenses to a multi-step income statement which means which basically is just the fact that we want more categories of expenses usually maybe some more categories of income too if we had returns and allowances and whatnot but of expenses for sure and if we sell inventory because inventory is so important to a business that solely sells inventory if we were a retail store and all we sell is inventory what's going to be our biggest cost the stuff that we sell the thing that how much we purchase the stuff for is going to be a big cost that's why we give it its own area here we also have to track the inventory some way using some kind of inventory flow assumption usually first in first out last in first out weighted average specific identification or something like that so if I subtract this out 405 that gives us a subtotal of gross profit gross profits only going to be there if you have inventory because only if you have inventory will there be cost of goods sold and then we have the other expenses now all of the other expenses are just going to be these line items in other expenses and if I subtract that out we get to 5203.31 that gives us to the 459246 that's the net operating income so you can see this is basically the bottom line before we get to the other stuff down here and to get to that bottom line it's just going to be pit stops along the way right it's just going to be things that are chopping away at the income the income is what we earned what we have what we have generated the revenue we've generated and then everything else is an expense generally decreasing chopping away at that income and that's going to be the cost to get sold the other expenses now down here then we have another category of you could have other income and other expenses down below why do we have those things well it could be the case that you have some income that you don't think is part of your normal business operations so if you have like dividend income or interest income because you have some investments for example but I'm a landscaping company I'm not in the business of generating interest and dividend income you might want to put it down underneath so that you could say yeah I have this income but I don't really want to count that income as my top line income number because I don't want to count it in my projections going forward due to the fact that I'm only holding on to that money that is generating interest and dividends for a short time because possibly I'm going to buy some equipment with it and shortly in the future so I don't want to really budget on that revenue being there but I still need to record it so I might put it underneath down below similarly for expenses you might have some expenses that you don't expect to happen again right it was just some weird thing some crazy person sued you because you know they stubbed their toe on your on a rake that you that they took out of your truck and they hit their toe with it and they stubbed it because they stole your rake and then hit their toe with it and then they sued you and so you had to pay him money and so like that hopefully that's not going to happen again so maybe that's just like an unusual thing that you put down here and say you know you lock the rake you don't just keep them in your truck you lock it down so people can't physically take the rake out of your truck and hit their toe with it so they can sue you so if you do so so then you might want to put that down here because you've solved that problem and you don't expect it to be repeating in the future and then you make your projections on the net operating income portion of the income statement all right let's expand these things one at a time before i do though just note that the profit and loss up top you can see that it's a time frame report because it goes you have a time range up top so you'll recall that both the balance sheet and the income statement have these ranges up top but when i change the range on the balance sheet just to remember this there's no change in the numbers right because this is still going to be as of December 31st so if i change this beginning date to 11 01 2 3 now there's only a couple months but it still didn't change anything what's the point of having two date ranges up top on a balance sheet when it only has one point in time report one reason is that you can drill down on the data to go into the transaction detail which is now a timing report meaning you do need the beginning and ending date because that will limit the amount of data you have in essence this gl type report the transaction report another reason is that you can use the range up top to get these custom reports sometimes with these comparative reports that we looked at in a prior presentation otherwise though you would only have one date up here because that's what's actually on the report the beginning date doesn't impact a normal balance sheet because it's as of a point in time but if i go on over to the profit and loss and the income statement this range is important if i change this range in a similar fashion changing it to 11 01 2 3 then you could see there's a significant impact on the numbers down below as you can see so that's the first thing we want to know whenever you look at a report any report you want to think is this report reporting something as of a point in time or is it reporting performance over a time range because that will have an impact on how the report acts if you're trying to customize it or anything like that so let's go back on over to 01 01 2 3 run it to refresh it close up all the little triangles again and just take a look at these expanding one at a time we'll go into the income statement now i mean the income line items income also sometimes called revenue so these are two terms you could you could use for the same thing it depends on you know who you're talking with in terms of whether they're normally going to call it revenue or income some people will also call the income line item sales which is often a term used when you're selling like inventory because sales if you're selling like bookkeeping you might call it income or revenue right it would be the general concept usually now normally with the income statement on income you don't usually have a lot of different income accounts why because you only do one or two things that's the point of the business you're specializing in a certain thing whatever that thing is that's what you're getting the income from you want to avoid the tendency of making income accounts based on who you who you sold the stuff to in other words some people have an urge to want to say this is income from customer number one this is income from customer number two and so on and so forth but if you do that once you have a lot of customers you're going to have a very long income statement so you don't typically want to do that what do we do instead if we want to run a report by customer then we can run a different report i can go to this first tab over here and i can go down to my reports on the left and i can i can run sales by i'm already in the reports what am i doing who owes you i got sales down here i have income by customer summary right so i can run that one if i wanted to boom open link in a new tab and then i can change i can say this is going to be oh one oh one two three twelve three one two three run it and so here's our income line comes out to 10 to 80 and it's not exactly this income line i don't think 10 200 but it's close why isn't it exact because quickbooks does not restrict you from saying quickbooks doesn't say hey you cannot report anything to an income type account unless you assign a customer it doesn't force you to do that it does generally a force you to do that when you go to accounts receivable that's why the accounts receivable for anybody's bookkeeping almost always ties out to the sub ledger because quickbooks forces that to be the case but if you always use the the forms up top of invoices and sales receipts and include customers when you make sales it should tie out the things should tie out and you can then run that second report if you want more detail of income by customer therefore we don't want to add income accounts by customer we don't want to say this is customer one income and so on so that's the general rule is there an exception to that rule there is because what if you are using something other than an invoice in a sales receipt and you're using bank deposits for example this is the case of that gig worker case maybe you get paid by youtube maybe you get paid by whatever other platforms are out there you get you're getting gig work of some kind platform number one plat they just send you the stuff you've used a bank account the bank deposit to record it well it's because you're not using an invoice you're not going to be be able to assign the customer in the same way and you won't be able to generate the report by customer and therefore you might just want to record income by platform this is youtube income which is basically your customer right although the customer might anyways you say it's youtube income it's the other platform uh income and so on and so forth so that's kind of the exception now you also have people that have a tendency and and urge to try to make a separate income account for everything that they sell this is inventory item number one income inventory item number two income and so on and so forth you you might want to do a little bit of that as you can see here this one's a little bit strange because it's a job cost system but you don't want to go overboard with that either because if you sell different inventory items you're going to have you're going to have a whole long list of different inventory items it's going to be tedious to attract to to map out your income account to the proper accounts and whatnot it's going to be too much detail what can you do instead there should be another report for it right because if you sell inventory items properly then in your reports you should be able to have sales by sales by product service detail right so I can right click on that and open that and say this is the report from 0 1 0 1 2 3 12 3 1 2 3 and this will give you that further detail uh that you want right so this is the stuff that you sold by invoice and sales receipts notice there's no deposit forms on it because that's not the form typically QuickBooks wants to be using to be selling stuff but that comes out to 10 280 doesn't tie out exactly over here because once again you could post things to income that are not done or assigned to a customer or item QuickBooks doesn't restrict that but if you only use the sales receipts and invoices to report income they should tie out so that's the general rule on the income side again there's usually a lot less income accounts and if you have it set up properly if you're not doing something funny then you shouldn't have too many income accounts and it should be pretty easy to manage the income side of things generally so I mean obviously there's issues with with how you're going to collect payments and that kind of stuff but I'm just saying the actual reporting which account should you report to should be fairly straightforward once you have the system down then you've got the cost of goods sold so the cost of goods sold is a subcategory related to inventory this one looks strange because you're like it's not that large of an amount compared to the income and but that's because it's a landscaping company instead of like if it was a a retail store where they buy inventory and mark it up or if it's some kind of job cost system where they buy raw materials they make it into a finished product and then they sell it then the cost of goods sold is going to be very substantial that's why there's a gross profit here so the cost of goods sold is is going to be tied to the sales forms that we talked about before meaning when you sell stuff with an invoice or the sales receipts that's when the cost of goods sold is recorded if you have a perpetual inventory system in other words when you have inventory you've got to think do I want to have a perpetual inventory system or do I want to have a periodic type of inventory system if you have a perpetual inventory system then when you purchase the inventory with an expense or bill form then it's going to increase the inventory amount in dollars as well as the unit amount in the system and when you sell the inventory with a invoice or sales receipt it will record the sales side as well as reduce the inventory and record the cost of goods sold at the point in time of sale or at least the point in time that you make the invoice and the sales receipt and it will reduce the sub ledger for the inventory valuation summary we saw that when we when we looked at these forms in a prior presentation so but you might not do it that way you could have a periodic inventory system possibly because you're tracking inventory on your other site possibly using a Shopify store tracks the units of inventory maybe or an amazon or something like that or an excel spreadsheet and there and if that's the case then you would still adjust the inventory periodically meaning you would you would just make your sales the way you normally would recording the sales however you end up doing it right but maybe with a bank deposit or month or the or transactions coming in from Shopify or amazon with a journal entry or something or you enter your invoices and sales receipts but when you enter the invoices and sales receipts you're not going to have tracking of inventory turned on therefore it's not going to record the inventory side of things or cost a good soul side of things rather just the revenue side of things and then periodically you do an adjustment meaning you you manually go in here and do a journal entry decreasing the inventory and recording the cost of good sold we'll talk about that stuff a little bit more in future presentations and then you have the expenses side of things this is usually going to be the longest categorization area it's usually the easiest one to manage once it's set up though because most of the expenses that we go that go through here most of the things that we buy are cyclical so once we have assigned the the category it'll it'll be easy to assign it in the future in other words if you go to work at some accounting place and the system has already been set up and you're in the job of doing the data input then what your job usually is going to be is say well what happened last month or what happened last time we had a purchase from this vendor or whatever for this thing and then just assign it to the same account that's going to be the general idea the problem the difficulty comes up with with the expenses when we first set up the company file because then we're going to have to set up our expenses and there's going to be a lot of them and there's a few different ways that we can do that which we'll talk about in future sections or course when we start up a new company file but the general idea would be let's go to the first tab over here I'm going to open up the chart of accounts in the transactions and the chart of accounts to the right and so usually when you start a new company file QuickBooks will give you a whole bunch of accounts and it's usually way too many accounts because they they really are only using like one chart of accounts no matter what information you're telling them in terms of your company type are your sole proprietorship partnership or a corporation and what industry you're in so therefore they they try to cover everything with one chart of accounts so when you first start up the company file you could try to use their chart of accounts which might be the way to go and then start doing data input for the first few months and whenever you assign an expense account see if the expense account works and use it if you like it if it doesn't have exactly the right name but you think it has a close name then you would come in here and change the name to the what you want instead of creating two accounts with similar names because that will lead you to to post to two accounts and that will be kind of messy so you want to make sure you only have one account you want to kind of avoid that then after a few months of data input you can go back in here and see the accounts that you're not using and possibly make them inactive so that you don't have this massive mess of chart of a of a chart of accounts in here just using the ones that you're using or you can remove the entire chart of accounts to start with possibly just on the expenses side of things if you wanted to and then whenever you enter your transactions possibly with the use of bank feeds because most of the transactions are going to be going through the expenses on the bank feeds you can create your own expenses basically as you go customizing your expenses from the start as you go and then after you do that for a couple months it should be fairly straightforward you can also make rules if you're using the bank feeds to record things according to the rules we'll talk about that in the future course or section as well getting into that in more detail also note that the drop down here like we saw with the balance sheet these these triangles are here by account type so this is has a drop down because these are expense type of accounts but these drop downs are because we have that sub account situation so this is a sub account we have all these sub accounts we have sub of a sub account in here okay so that so so those sub accounts are nice you can set those up on the on the general ledger but some people I think kind of go overboard with the sub accounts but the general idea with the sub accounts would be that if you if you want to put your accounts in order in some way one way you can have more control over the ordering of the accounts in any given area is to have account numbers but account numbers add a lot of difficulty into the system if you don't really know how to use them they're a little bit cumbersome to use if you're adding new accounts so if you're not comfortable with them you might not want to use them in which case within each category it'll be in alphabetical order in other words you can see this thing is in order first by account type income cost to get sold expense and then other income and expense that's the way it should be but within the category such as expenses where you have a lot of stuff it's in alphabetical order right and so what if I don't want it in alphabetical order within a category well you can try to assign account numbers that's one thing or you can use the sub accounts which means that I can at least group particular accounts under a certain heading that's great it gives you more detail but it also makes your report a lot longer because it's going to add a a header row and a sub total row so that means there's like two extra rows than if you just added you know one account at a time so that's going to be the trade-off now of course you can collapse these and basically make like a summary type of income statement and that's one of the great benefits of that method because now I can try to print a report that has less detail this way and then I can get the more detail by expanding the triangles and that is a useful tool also note if you want to change the order of these accounts possibly trying to put the largest dollar amount up top for external reporting purposes you might go up top and then say I want to have uh where where did that one go oh I see it's right here it's sort right here and total and descending order so there we have it so now you've got the highest dollar amount one not the one in alphabetical order now if you're providing these reports to an accountant who might be putting it then in their own software then you probably don't want to do that because the accountant wants the same order of accounts from year to year so they can make an easy comparison from year to year oftentimes but if you're giving it to the bank or something like that then maybe the most important accounts the ones with the biggest dollar amounts being on top kind of makes sense so that's another kind of formatting tool uh that you can use now also just remember that these accounts are going to be basically the names of the accounts can somewhat be standardized but they'll also be somewhat specific to the business different businesses will have some unique type of accounts oftentimes depending on the business but the categories will usually not be categorized categorized by vendor just like with the revenue size you're not going to say this is this is Edison the utility company uh bill right you're going to say no it's the it's the electric bill that's what we're going to have it's the electric bill not the Edison bill so that also remember when you're doing the bank transactions from bank feeds which usually will give you the name of the vendor that means that you have to be able to convert in your mind the name of the vendor to what it is that you are buying so that you can make an expense account based on what it is you are buying from the vendor rather than making an expense account called Edison you know the vendor name so uh that's just something to keep in mind as as well and so there's going to be the account types that we have here now the the expense aside often also has the most flexibility with with how you're going to format your your your income statement we saw the sub accounts you have flexibility there you also have flexibility with how many accounts how many accounts that you want in other words you might say hey look I I want it to be easy I don't want to have to report all of you know all these different categories I'm just going to call it expenses that's going to be I'm just going to have one account called expenses well that's too that's probably too restrictive right if I if you fill out the tax return and you say that I have my my expense accounts are just called expenses that's probably not going to do it you're going to need more categories than that but sometimes people go overboard the other way and they start putting too much detail every vendor that they pay something from they're like well this is now I had I went to this restaurant for meals and entertainment but no this was the the Spanish restaurant that I went to rather than the French restaurant that I went to rather than the restaurant that you know you know they might you might have too many categories and you can go overboard and and if you have categories where you're only reporting like 25 dollars in it or something like that well you probably have too many categories maybe you could have grouped that you know somewhere else you're going to be creating too much work for yourself and the added detail will not be worth the cost of time to put in the extended reports in place so you want to like utilities is a classic example because it used to be that utilities used to be the telephone gas and electric and possibly water even trash would be under the the utilities but as time passed the telephone became so important that it basically broke out into its own category so I think most people although they put it under utilities here still under subcategory would basically put the telephone in its own category right now maybe not even call it utilities and the gas and the electric because for most companies those are still relatively small possibly compared to everything else maybe you group those together in one area however if you're growing something like with a with electric lamps or something then your electric bill will possibly be quite higher than other people or something and so that in that case you might want to break out the electric because it's such a significant thing to your business so those those are the kind of things you want to keep in mind in terms of how there's no there's no one set rule to say this is how you group all of the expense accounts across the board that's why we can't exactly standardize things there's certain conventions and and general rules that you can fly apply heuristics I guess but there's not like a rule for every business because it depends on what expenses are most important to you as to whether they should be expensed out in their own category or combined with other expenses grouped together to make the report a little bit easier to read so then down below we've got of course the net income the net income is the bottom line the line at the bottom and we typically if you change the net income just note up top to like one month if I said this is at 12 31 12 0 1 2 3 for example then I'm going to have net income for for the month down here a loss but if I go on to the balance sheet notice the balance sheet doesn't change right if I if I run this for the one month 12 0 1 2 3 then the net income down here is still on a yearly income so so so the way QuickBooks is set up is it rolls over the income statement automatically on a yearly basis and it's not going to change it to like a monthly like you would think that well shouldn't like 11 months be in retained earnings and one month being net income well no because that's not how QuickBooks does it it just does the whole year no matter what you do with the dates in that net income area so just to to point that out and just also just remember that if I run a report 0 1 0 1 2 3 we'll take a look at this more later but if I run a report like quarters then now you've got your performance by quarter and then it sums it up total for the year that's different than the balance sheet because it's a it's a performance report so bottom line income statement performance report you need a beginning date and an ending date whereas the balance sheet was a point in time you only need one date basically to have a basic balance sheet