 Zero accounting software, profit and loss, P&L, income statement, overview. Get ready to be an office hero with zero. Here we are in our custom zero homepage. We set up in a prior presentation, zooming in a bit, holding down control, scrolling up on the scroll wheel, currently at 175% zoom in, opening the demo company, but doing so with the reset item, which will reset the data and open the demo. We're then gonna be opening up our major two financial statements in new tabs up top as we've been doing every time. Right-click in the tab up top to duplicate it. Right-click in the duplicated tab to duplicate it again. Back to the tab to the middle as the tab to the right thinks. Accounting drop down, we want the balance sheet. And then tab to the right this time, we want the accounting drop down, the income statement or profit loss, P&L. And then back to the balance sheet, we're gonna change the name and customize it. Por favor, bringing the name on up to, I'm sorry, bringing the date to 2022. Got a little loss there. I'm gonna update that and there we have it. So that's what we've been doing every time, balance sheet and the income statement. In prior sections, we've been focusing in on the balance sheet. Now we're looking at the income statement. 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. So we're first gonna give some analysis or some thought in terms of what the income statement is, what accounts are in the income statement because these are the two major financial statement reports. When you look at all the other reports that are in the reports section, you can think of them as generally giving more information about one or multiple items on the major financial statements, balance sheet and the income statement. So quick recap in that the balance sheet is as of a point in time. This is where we stand as of a point in time. It is the accounting equation, assets equal liabilities plus equity. The income statement is the performance statement. And notice down here they do do the same thing that kind of QuickBooks does. I thought they didn't before, but they do have down here the current year earnings. So that current year earnings is trying to indicate or tied together the income statement and the balance sheet. So if I go on to the income statement, you could see down here we've got the current earnings down below. So the way you wanna think about this is or one way you can look at it is if I go back to the balance sheet, the balance sheet is the double entry accounting system, assets equal liabilities plus equity. So how does the income statement, revenue and expenses fit into the double entry accounting system? If the balance sheet is the accounting equation, it gives you timing, it gives you distance, it goes back into the past. So now part of the equity section, which is assets minus liabilities, the bottom line to some degree, the owner's kind of value in the business on a book basis, then it's gonna be broken out in terms of how we got that value looking at the last year, looking at the performance, revenue and expenses. So it's kind of like this is where we are at this point in time. The income statement you could think of of an analogy of trying to drive a car as far as you can go in like a day. You're just gonna reset the odometer, you're gonna go as far as you can go for a day and then whatever the odometer says at the end of that day, that's how far you went. And then if you wanna test it out again next time, you can reset the odometer back to zero again. The balance sheet shows you where you ended up at the end of that timeframe. So all of these accounts down here, income and expenses being the major two are just going up, up, up in general over the timeframe that we have given. That would be either mainly a month, a quarter or a year. And then how they're gonna be reset generally thought of at like the end of the year or whatever the next date of time set is so that we can count up again from there. So that means the income statement is gonna be for the year ended December 31st. That means January through December as opposed to the balance sheet which is as of a point in time says as of December 31st. So if I go back on over to the income statement, the major accounts on the income statement, if it was a single step income statement, we might call it would just be revenue or income accounts increasing as we generate revenue and then expense type of accounts representing the things that we consumed in the business in order to generate the revenue. The assets we consumed that are now expensed such as cash for example in order to generate revenue in the business. So then we also have some subcategories that can happen along the way which might be cost of good soul being the biggest one and more of a multi-step income statement you might call it because that one is so important if you sell inventory because it represents the cost of the inventory you sell that we break it out into its own kind of category here and then we also break out the gross profit. So let's just pull out the calculator and run through the income statement just to get a feel for how the calculations look on it. So we've got the income accounts which is the 3623.86 minus the cost of goods which represents the sale of inventory. If you don't have inventory, you won't have any cost of goods sold. If you do have inventory, the relationship between the sale of inventory and cost of goods sold is so important and so big of an expense that we have our own gross profit, a subtotal kind of a pit stop along the road to get down to the bottom line of net income. And then we've got operating expenses which in essence is everything else. So we put everything else in essence into the operating expenses and that totals up down here. So if I subtract out those expenses 39066.56 we're at a loss at this point in time for the net income. You also might have some other expenses which are non-operating or non-operating income and expenses down below down here in some cases, which would be things that are not part of normal operations. Therefore you might want another pit stop along the way before you get to net income. So you can look at the things that are actually connected to driving revenue and what you can predict will be there again in the future to those things that are not connected or are not normal in the operations and therefore you put them kind of at the bottom. So that's the general idea. Let's go back up to the top. So the sales items, notice if I go to my flow chart here, the sales are gonna go up typically with the invoice forms and the sales receipt forms or when they're either going up and you make an invoice or you receive payment at the point in time that you did the work or possibly with a deposit form which isn't really the natural form or money increase form, not really the natural form to be using, but might be the easy thing to do in some situations like if you have a gig work, if you get paid just by YouTube or something like that, and then we can increase the sales. Now note that we only have one line item of sales here. You might think, well, look, I sold stuff to a bunch of different customers. I sold stuff to a bunch of different things or a bunch of different services. Why only one sales line? Why don't I make another sales line for all my big customers or why not for all the things that I sell? Because you don't wanna muddy up the income statement. In essence, the idea being you're only doing like one or two things in whole, in group, in category on the sales side of things. And if you add every particular inventory items you sell or every service you do, then your income statement, it's gonna be really long, cumbersome, and muddy. And we should have other reports that can help us out with that. So we've looked at some reports and generally we'll probably look at more in the future that might give us some more support on the sales line item, possibly breaking out that a number by customer. So we might be able to use subreports to do that instead of muddying up the income statement with that added deal. So we might have a sub report breaking this information out by what we sold by item inventory or service as well. If I go back to the first tab, let's go to the accounting dropdown and look at the chart of accounts. So if I look at the chart of accounts, we can see it's normally in order in terms of assets, liabilities, equity. In other words, the balance sheet on top of the income statement. We can also break it out here by looking at the sales, which is the revenue line item here. And there's our sales items that we've put together in the chart of accounts that are used then to create the financial statement. So whenever we enter a transaction, most likely an invoice or receive payment that will be having an impact on the sales oftentimes. All right, then the cost of goods sold. So that is only impacted when we deal with inventory. So remember that when we have inventory, it complicates the system because usually that's gonna move us from doing a simple cash kind of system to having to do an accrual basis, meaning when I buy the inventory, usually we're gonna put it on the books up here somewhere as an asset. And then when I sell the inventory, we're gonna move that, we're gonna decrease the asset and record the cost of goods sold when we sold it. You can see that's an accrual thing because if I just bought and sold the inventory, you might say, well, why don't I just expense the inventory when I bought it? You could do that. That would be a cash based system. But now you're buying the inventory that you haven't, it hasn't really earned you the revenue in that time period. The accrual concept is that you wanna have it as an asset because it's going to earn you revenue. The assets are there to generate revenue in the future. It hasn't yet done so. You haven't really consumed the asset until the point in time that you sold it. And that's when you bring it down here to basically cost of goods sold at the point of sale. Now dealing with inventory, you could do that on a periodic basis. So you track the inventory outside of the zero system. And then you just make a periodic adjustment to record the cost of goods sold. In that case, it's a little easier to set up, but you don't have that real time activity in the zero system. Or you can have a perpetual inventory system in which case the cost of goods sold would be recorded when you create a sales item that sells inventory. And that generally happens with an invoice or a receive money form. So we've looked at those forms in the past. And we'll take a look at more examples in the future. And then we've got that pit stop along the right way, the gross profit, which we don't wanna get confused with net income. It's just like the pit stop. And then we've got the operating expenses, which is basically everything else. Now this is normally the longest category of types of accounts. You got assets, liabilities, equities, income, and expense. Usually we have more expenses than any other kind of account. We would like the dollar amount of revenue to be higher than the total expenses, which it's not in this case, because we've got a negative, although cost of goods sold in there too. But in terms of the number of expense categories, there's generally the most kinds of expense categories down here. And you can think about that because in part, on the income side of things, we're just doing one or two things. We're specializing on what we do to generate revenue. Everything else that we need in order to facilitate that revenue generation, we are paying for. So we're paying for all kinds of other different stuff and we want to categorize it in such a way that it's easy for us to compare and contrast and budget into the future in terms of what type of expenses are actually helping us to drive the goal of generating the revenue. So we categorize the expenses by category. We got advertising automobile and so on by the category. Most of these are quite common generally, but some of them might be custom to a particular company. So some of these expenses might be more or less important. Also note that some people have a tendency to have way too many expenses. So every time they have a new category in their mind, there's like a $75 charge and you have to put it in a new category or something. You don't wanna have too many categories because it becomes tedious to then enter the data, although you can automate it to some degree and looking at your income statement, you'll just have too many categories. It'll be overwhelming. You're not gonna be able to pull relevant data. However, you also don't typically wanna have too little categories. You can imagine someone just having one expense category. That's my expense category. Well, that's too little because now you don't have enough information to decide which type of things you should be spending your money on. So you wanna be somewhere in the middle. Also, some people have a tendency to try to group their categories into subcategories a lot, which you can't do the same way as in other software with the subcategories don't work quite the same way, but you have this nice tool down here in zero that you can group things together. And we'll talk more about this in the future. So let's say like I wanted to group, you know, these two items for whatever reason, you can add a group, I'll just call it group, and then I'm gonna say, and so now you've got this whole drop-down thing with the group, and that's really cool because now you can update this and you can expand, you can show an expanded thing down here with the group. So here's the grouped item or you can collapse the group, right? So that's similar to like using subaccounts, only one of those two accounts had data in it, that's why there's only one here. But you can see it also adds a lot of space here because now I got a group and now I've got a subtotal under the group. So now I've got a lot more stuff in there. So it's harder to look at in some way. So some people can go overboard on that kind of technique as well, but that technique is available here. It's just a little bit different that you might see or be used to and it's got its pros and cons in terms of it's probably more flexible in that way. You can also actually change the order of the accounts like we talked about before instead of having it in alphabetical order. Zero has this nice thing where you could turn on the account numbers. So I could say I wanna see account codes, basically account numbers, and now it's gonna be ordered by, in essence, account number by default. But you can also turn those account numbers off, which is something you can't do in some other softwares which is honestly kind of annoying. And then you can actually reorder these things using your edit layout tool over here as well. So that's pretty neat. We'll talk more about that in the future but I wanna just point that out in terms of the formatting. Then you got the total expenses and then you've got the net income which is gonna be the bottom line. That's your performance revenue minus all of the expenses. Also just note on the expense side of things, some people also have a tendency like with the income to make expenses by who they paid. So you're not gonna say that I'm gonna have a Verizon phone expense. You're just gonna have a telephone expense, right? Not a Verizon, because the same thing is true. You might be able to have other reports or look elsewhere to see who you paid. Here we want the categories typically by default of what we paid for is the general rule. Okay, and then of course that net income rolls into the balance sheet here. So they actually have an account to kind of showing it roll over here. And then if I was to go to the next period, let's say I go to, or let's say I just changed the date here and I go to a custom date and say it's gonna go from January and let's say we just did it to January, to the end of January. So now we've just got a month of data. And you can see that's gonna be a lot smaller number because we're not going, we're not as of a point in time, we're seeing what activity, how far we went in each of these accounts during that timeframe. Notice over here, if I changed the date on the balance sheet and I changed the beginning date, for example, it's not gonna change the numbers. There is no beginning date, right? Because it's only as of a point in time. So that's one of the key things to note when you look at all other reports, then you wanna think about am I looking at a report that's more like a balance sheet report, reporting things as of a point in time, or an income statement report, which is a performance report showing activity over a timeframe.