 QuickBooks Desktop 2023 Profit and Laws P&L Income Statement Overview Let's do it within to its QuickBooks Desktop 2023 Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Here we are in QuickBooks Desktop sample rock castle construction practice file provided by QuickBooks going through the setup process we do every time. Maximizing the home page to the gray area going to the view drop down noting we've got the hide icon bar and open windows checked off open windows on the left hand side. Going to the reports drop down company and financial opening up the profit and loss report tab doing the date range change from 010124 to 123124. That's January through December customizing that report going to the headers and the footer so we can change the font on up to 12. Yes, OK, then reports drop down again company and financial this time the balance sheet standard going to change the dates with the drop down this time. Looking at this fiscal year 2024 for us, we're going to go to the customizing of the reports fonts and numbers to bring that font up to 12 again. OK, yes, OK, there's the setup process we've been doing every time in the prior section we focused in on the major financial statement report of the balance sheet. Now we're going to focus on the other major financial statement report known as the P and L profit and loss or income statement. That's the first thing we want to note within QuickBooks from QuickBooks terminology. We call it the profit and loss when you think of normal accounting terminology will typically be called the income statement. In essence, we have the same report here if you wanted to change the name to be providing to someone else that's custom to the term of the income statement. You could go to the customized reports as we've seen before headers and footers and simply change the title of the report to an income statement. If you so choose going to close this back out. I would also like to like take a look at the chart of accounts. So let's go to the list dropdown and open up the chart of accounts which we've seen in prior presentations. Remembering that the chart of accounts is going to be that baseline that we got to lay down before we start entering financial transactions that with the forms that are on the home page, the icons on the home page in order to create the financial statements from them to create the financial transactions from them to create the financial statements balance sheet income statement and related reports. Now in prior presentations we looked at the balance sheet remembering that if we look at the order of our types, we have in essence balance sheet on top of the income statement or profit and loss, assets, liabilities, equity and then income and expense. Further broken down into banking accounts receivable other current assets fixed assets credit cards in the liability section now other current liabilities long term liabilities equity and then income statement accounts income and expense. Further broken down into income cost of goods sold a special expense and then other expenses so that's where we're looking at at this point noting that the expenses category is usually kind of the longest category, meaning we have the most different kind of accounts within the expense category than any other typically back to the profit and loss. The profit and loss shall note has a range of time instead of a point in time when we looked at the balance sheet we said where do we stand as of this point in time. So if we were looking at the time frame of January through December the balance sheet will show us where we stand. For example the cash account how much money we have in the bank as of the end of that time frame the point in time of December 31, 2024. The profit and loss or income statement shows us the activity performance over time. So it's important to kind of see the relationship between these two and that's shown on the balance sheet here which is a little weird for QuickBooks or it's a little weird for financial reporting but QuickBooks does it. So if you go down here you see that on the income statement we've got the net income down below which normally would be in retained earnings and you can see it will roll into retained earnings. If I switch the date on up to the 25th you can see down here now that amount rolled into retained earnings and we only have what happened in the year of 2025 for this practice file back to 2024. And so that's meant to kind of show us the relationship between the balance sheet and the income statement. So in other words remember that the balance sheet is where we stand we can think of it in terms of assets is what we have, liabilities is what we owe to a third party. The equity then is the net value in the company for the owner whether that be a sole proprietorship or needs to be broken out between a partnership or needs to be broken out between the shareholders of a corporation. The next step would say okay well if the value of the company in total from a book standpoint is 219-629-60 how did we get there? What's the performance that happened to get to that point in time? For that we're going to look at the income statement a performance report which is going to help us see how we got from point A to B meaning how we got from the prior balance sheet standpoint before this time to the current balance sheet point at this point in time. That was the work that we did that's reported in the profit and loss. So if I go to the P&L you can think of it, I would think of it kind of like if you're trying to see how far a car can drive within a certain timeframe like an hour or a day. So you reset the odometer to zero, you drive for a day and you see how far you got at the end of the day. That's kind of like what the income statement is doing. We reset it each time to zero and then we let it run up between the timeframe in this case January through December to see where we stand and how far we went from the two time ranges. That's why you have to have a time range. So we're going to do the same thing we did on the balance sheet. I'm going to try to minimize everything with a little carrots here. So we'll minimize everything here and I'm going to go from the inside to the outside as much as I can when we do the minimization. So here we have that. Here we have that. Okay. And then I'll minimize all the expenses. The cost to good soul looks good. And then the other other stuff. So here is the income statement now from the most basic standpoint of an income statement if you had like a what we would call a single step income statement. We would only have income and then expenses right income and then expenses because income represents money that's coming in. And notice when we talk about money coming in it's on an accrual basis we'll get into that in a little bit more detail shortly. But basically we're talking about earnings versus in essence money going out or we'll ultimately go out things that we expended in order to generate the revenue which are going to be the expenses. These two things should be linked from an accrual standpoint. We want to link them in the same time frame because remember this is in this this time frame of this year. So the income that we generated within the year we would like to link it to what we had to expend within the same time period to generate that revenue. That's the that's the general idea so that we can then use that to look at performance and compare that to another year. The following year for example or the preceding year to look at our performance over time as well as compare it to other companies. Then we add a little bit more complexity what in what we would call this is more of a multi step income statement as opposed to a single step income statement. It still only really has income and expenses but we've got some pit stops along the way because we have some very important expenses that we want to emphasize in some subtotals that we want to emphasize along the way. Let's pull out the trusty calculator. So here we've got income and then cost of goods sold. So the cost of goods sold represents then us selling inventory in order to generate revenue because if you're in a business that sells inventory that is such a huge expense. The expense of you buying the inventory is going to be a giant expense. That's why oftentimes we want this subtotal. That's where this subtotal comes into play income minus the cost of goods sold gives us the gross profit. And then we're going to take all the other expenses are pretty much all the other expenses group them into one category or normal operating expenses you might call it to get down to the net ordinary income. So the net ordinary income represents our performance for this this time frame in case in this case this year. And then we've got other income and expenses these will include things that are not part of our normal operations but our income and expenses. Oftentimes people put financing charges down here because if you have an expense that is interest expense then that's that's really a financing thing it's not really part of our normal operations. If we had the cash flow we wouldn't have that financing charge so maybe we would like to see net income but without it and then add it at the bottom or if I had interest income for example. That's another one where we're not really in the business in this case as a construction company of loaning out money and generating interest income we're not in the business of finance you know investing for example some companies may be in that business in which case that might be part of their ordinary income but if it's not and you got some interest income maybe you don't want to include that in the ordinary income because it's not part of your normal operations and therefore you put it down here on the bottom to get to the net income. So in our multi step income statement we've got income four five four six five seven point one four minus cost to get sold one eight oh one two four point one nine gets to the gross profit two seven four five three two ninety five minus normal expenses operating expenses you might call it one five five eight five one point five three gets us to the net ordinary income and then we've got the other components other expenses in this case it looks like minus four seven three point two two and that gets us to our net income hold on a sec we've got to add that amount four seven three point two two that's income plus four seven three point two two that gets us to our one one nine one fifty four sixty four okay let's go into each of these a little bit more in detail we've got the income accounts first this is us generating revenue money going into the business and so note that this income account will typically be on an accrual basis by nature but it will also depend on the type of business you are in which if we go back to the homepage we talked about a business for example that might be a cash flow basis or might even be a step further from a cash flow basis one dependent on the bank in that case when you enter the deposit you might be entering the income at that point in time and you in the deposits are going to be the things that are going to be driving the income going up into the income form you'll basically be on a cash flow basis in that kind of industry that's a little bit unnatural for quick books because these two forms invoice and create sales receipts are usually the ones used to generate income or report income if you are on a cash based system with a register situation and you collect money or get paid at the same point in time you do the work like a food truck then you might put the money in with a sales receipt that would be the form that would be typically increasing the revenue account and you'd still basically be on a cash basis method but if you invoice the client that would be like a bookkeeping service CPA firm law firm then you're going to do the work first and you're going to record the income at the point in time that you do the work as opposed to when you receive the payment at a future point in time that's when you're going to be moving to more of an accrual kind of component the income here then is going to be reported when you earn the revenue typically and so if if that's when you have an invoice then that usually be the closest place to earning the revenue so income accounts usually there's only a few of them you might only have like one or two kind of income statement accounts oftentimes because income statement accounts represent the general category generally of what you do in order to generate revenue this one has more income statement accounts because we're in the business of a construction business with a job cost system which is designed a little bit differently it's a bit of a specialty area but oftentimes like if you just if you just do one thing you might have one income statement account and then you might be tempted to make other income statement accounts that will be like by customer by your large customers or you might try to make an income statement account by what you sell a bit too much detail of it like your inventory items or the services you provide but you don't want to break out too much detail in those categories because remember we have other reports they can break out those details meaning if I go to the sales icon and we saw in the reports area that we could have or we had we saw briefly and we'll go into them in more detail but you got the sales by customer report here which can take your income accounts your income line item and break it out by who you sold it to 53 it's 9695 and it doesn't tie that report hold on sale by customer let's change the dates from 010124 to 123124 and so now we've got this comes out to the total of 5452943 and so this comes out to the total income 454657 notice it might not tie out exactly because it's possible for us to report income without assigning a customer to it and you kind of have to be careful of that if you want to get the added detail of kind of that sub ledger report but if you have the capacity to break out that other report then you don't want to be making a bunch of income statement accounts that are broken out by customer the same thing is true with the with the items inventory items and service items if you go to the to the sales and we go sales by item summary changing the date up top from 010124 to 123124 so there we have it so we got the sales by item and once again if we scroll all the way down we've got the 45294325 and if I go to the profit and loss it's again a little bit 454 a little bit different because it is possible for us to record something to income without using an item and it's a little bit more difficult to do that when we do that we have a similar kind of sub ledgers comparison when if we look at the balance sheet like the accounts receivable can be supported by breaking it out by customer with a sub ledger account that one usually ties out pretty much exactly all the time because QuickBooks has internal controls forces you to use a customer when you when you record something to revenue it doesn't necessarily force you to use an item and it doesn't necessarily force you to assign a customer and that could be good because you might not want to sometimes but it also makes it so that you can have a difference between your sub ledger and your report here but in any case that's the income line items and then we've got the cost of goods sold which will only be there if you sell the inventory items now the cost of goods sold is going to be something that is recorded when you enter a sales item a sales receipt or an invoice typically if you're using inventory within QuickBooks on a perpetual inventory system if you're not using a perpetual inventory system and you're using a periodic inventory system you will have to kind of count the inventory periodically into the night into the week into the month so on and then record an adjustment decrease in the inventory account on the balance sheet and record in the other side to the cost of goods sold but there's the cost of goods sold and then we've got all of the expenses these are all the other expenses that we probably you know know of or think about when we're thinking of expenses the auto expense the bank expense insurance expense notice that we call these expenses by what we're going to be using them for right it's an automobile expense it's an insurance expense we don't call the expense the name of the vendor we don't say the auto expenses are you know for expense or something like that so that means when we enter these transactions into the system possibly using bank feeds these are the most common transactions with bank feeds that people would use they would come through as in essence a check form possibly if we wait till they clear the bank and then record them we got to use the vendor like in that case Ford company motor company to know what we paid for to categorize it as the proper expense like auto expense on the profit and loss or income statement so there we have those notice that these are in order by the account numbers because we turned on account numbers if they were not ordered by account numbers because we didn't have them turned on they would be ordered within this category in alphabetical order and then and so we have a little less control over that if we don't have account numbers and you could have a little more control by using these little accounts now these carets here are sub accounts so we have a sub account of the automobile automobile being the parent account notice they didn't post anything to actually automobile itself but instead used it as a parent account to then record stuff into fuel insurance repairs the sub account under the automobile account so that could be quite useful because it allows you to kind of put these things into the same area which is nice even if you don't use account numbers however it also makes this quite long and that now we've got a parent account and the total which adds two more lines than you otherwise would have if you didn't use that sub account and possibly you wouldn't use all these you could have one line just called automobile and that would be a lot shorter than this so notice that these sub accounts could add detail but they also that detail could be confusing at the same time so that's the balance that you're trying to reach how much detail do I want is the detail that I'm adding adding more value to to or is it or is it costing more than it's adding in terms of complexity so if I go to the to the let's take a look at the chart of accounts just to see that down here there's the sub account so you can see here here the normal accounts and then we just basically created a sub account if you go into the sub account or let's edit the sub account right click and edit an account you can see here we made it a sub account of insurance that's how you can set that kind of thing up let's go back to the profit and loss so we've got that for insurance and then if I expand all these out once again it comes out to a pretty long report also remember it's up to you to determine the names of these accounts note that you might be saying you might say hey look I want to create create an account I want the names to be whatever they are as if they're set in stone but they could there's some names that are going to be used for most businesses telephone utilities and so on but you might have some customization depending on the industry that you are in and there might be certain accounts that you think you want to put more focus on for whatever reason and you might name them differently you also might group the accounts differently you might for example under utilities just put all of these things into one utilities account because you don't think breaking them out into three accounts is worth your time in other words it doesn't give you enough valuable added information to make it worth the added space it's going to take or you might like to break them out right so you could say maybe I maybe I put the gas and water together in utilities and then put telephone separately because telephone you believe is going to be large enough to warrant another another account so these are questions that you got to kind of answer internally also realize that if you are taking the accounting process over from another business you want to be consistent with what they are doing and possibly slowly or gradually move on to something else or else you will lose comparability from the prior period to the current period you want consistency when you when you're doing that so usually if you're taking over a bookkeeping job you'll just try to figure out what happened in the past and mirror what they did into the future so that you can be consistent so that gives us our net ordinary income and then in the other income category we've got other income down here which they've got other income and interest income down below and that gets us to our bottom line of the net income so the net income then is basically income minus expenses on an accrual basis if we're in an accrual basis type of company in other words if we're using basically invoices on the income side and bills on the expense side of things and that shows us how we got from where we were before on balance sheet to the current point we are at so that's how it's connected to the balance sheet so if I go to the balance sheet we can look at then the equity section we can send it if we consider two periods let's customize up top and I'm going to take this from 12 let's take this from 010123 to 123124 and then let's break this out and make it by a year I'll make it by year and so now we've got the two years right so if I take assets minus liabilities gives us the equity of 2023 which was at 100,47496 and I look at where we stand assets minus liabilities in 2024 to 1962960 a big part of the story of how we've got from here to here is the past year of activity that happened we usually go one year back at a time the income statement we could go monthly back quarterly back that's the story of how we got basically from there to there there could be other things involved in the equity account that could be us putting money into the equity account and us basically drawing money out of the equity account which also can have an impact but you know that's the general idea that's how the income statement is related to the balance sheet the balance sheet in the income statement are the two main reports they are the main reports that are the double entry accounting system assets equal liabilities plus equity the equity section here then you might ask how does the income statement income and expenses fit into a double entry accounting system equation of assets equal liabilities plus equity it's because the whole income statement is part of equity it's breaking out the detail of the equity a year back the balance sheet is as of a point in time it's telling you a story about assets minus liabilities or in essence the equity section is one way that you can think of it