 QuickBooks Online Profit and Loss P&L Income Statement Overview Get ready to start moving on up with QuickBooks Online We're going to be using the free QuickBooks Online test drive Searching in our online search engine for QuickBooks Online Test Drive Picking the option that has Intuit.com in the URL Intuit being the owner of QuickBooks We're going to select the United States version of the software and verify that we're not a robot Scrolling in a bit by holding down CTRL up on the scroll wheel Currently at 125% on the zoom in In the cog drop down, we're noting that we're in the business view I'm sorry, we're in the accountant view As opposed to the business view We'll try to toggle back and forth between the two views So you can see where things are located within them Duplicating the tab up top to put reports in As we do every time, right clicking on the tab to duplicate it Right clicking on the duplicated tab to duplicate it Back to the middle tab as the right tab is thinking To go to the reports on the left and then open the balance sheet As that's thinking, tab to the right Go to the reports on the left hand side This time the P&L, the profit and loss, the income statement Which is our report of focus this time I'm going to scroll up and close the hamburger As otherwise known as the hand boogie And range to the change from 010122 tab 1231222 tab, run it to refresh it And then back to the tab in the middle Close in the boogie and scroll it up And we're going to range to the change from 010122 tab 1231222 tab, run it to refresh it And then now we're going to go to the tab to the right That's the setup process we do every time These are our major two financial statement reports 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 In the prior section we were focusing in on the balance sheet Which represents where we stand as of a point in time Now we're focusing on the income statement So there's kind of a primary difference Between these two types of reports And you also want to keep that in mind As you look at other reports Because remember all other reports for the most part Give more information about one or multiple line items On either the balance sheet or the income statement So it's useful to look at every report and ask The question is this telling me where I am At a point in time or is this telling me a performance report What happened over a time frame Needing a beginning and an end Let's just emphasize that a little bit more here By taking a look at the balance sheet Which we've been looking at in prior sections And you can kind of ask the question About an account on here Such as accounts as the checking account If I ask you how much money you have At this point in time You can look in the bank And answer the question as of this point in time You don't need a beginning date In order to answer the question As opposed to if I go to the income statement And pick an account And if I ask how much revenue did you earn You can't really answer that question Without making an assumption The assumption being what do you mean Do you mean last month, last week Last paycheck period, last year So you can kind of think of the income statement As though I would think of it similar to If you kind of drive for so long Or a time frame like a day And you want to see how far you went You would have to then reset the odometer Or at least set whatever starting points You're at as your zero And then count how far you went That's what the income statement is doing We reset it back to zero That's the closing process And then count up in all the accounts Involved income and expense accounts The difference between the two Being the net income So let's do the same thing We did basically on the balance sheet I'm going to try to close everything From the inside out And then analyze our income statement So I'm going to close everything up Thusly And break it down to its bare bone Bare minimum on the income statement Now if this was a single step Income statement you can even think of it As smaller than this You could just say it's going to be income What we earned minus the expenses Everything else would be the expenses Would get us down to net income We would call that a single step income statement And then we're going to add other steps In the income statement for really critical components As we get down on our truck down To the bottom line of net income That includes the cost of goods sold And then we might have other expenses And other income down below So let's first go to the first tab here I'm going to open up my general ledger So we can compare the general ledger To the accounts that we're using So we're going to go into the accounting And go into See the accounts and here's our chart of accounts The chart of accounts is grouped as balance sheet accounts On top of income statement accounts So I'm going to scroll down Here's where the income statement accounts start And you can see that the triangles That we have collapsed now Are collapsed by account type Income type of accounts And then cost of goods sold Expense type of accounts That's what we have here Now also just want to point out At this point since we looked at the balance sheet You might ask how is the income statement Or profit and loss Related to the balance sheet So if I go to the balance sheet You'll recall that down here in the equity section Or you may recall In the equity section So that's important to note that link Because the balance sheet is the accounting equation If I collapse all this It's the double entry accounting equation Assets equal liabilities plus equity If that's the double entry accounting equation How is it that the income statement Fits into the double entry accounting system Because I don't see assets, liabilities, or equity On the income statement But it must be part of the double entry accounting system The reason is because you can kind of think of The balance sheet once again as a point in time The income statement is giving more detail On how we got to this point On the balance sheet And that detail can kind of be broken out In summary in the equity section Which represents assets minus liabilities Kind of the net worth of the company And the net worth of the company Has been impacted in the last year By the earnings of net income It rolls into the balance sheet And if I was to go to the next period up And change the date up top to 2023 To 123123 It would roll into the Retained earnings So it's not really natural Or it's not normal for the reporting purposes To have net income on the balance sheet Oftentimes But I think that's Quickbook's way of saying Hey look there's a link Between the income statement and the balance sheet This is how they are related This is the net value Assets minus liabilities The income statement is giving us a story Of how we got to this point in time It's not the whole story It's just one year back in the story Also note that if you learned accounting You would call that the closing process We closed out the income statement To the balance sheet account And you could think of the closing process Happening at the end of any period Like the end of the month You can think of it closing out But notice that Quickbooks is doing it Automatically here So Quickbooks has to basically come up With a determination of when they're going to close This out And it's going to be as of The end of the year So it's going to be the year to date number I mean it's going to be the net income You can't really close out It's not going to report the same As if you're going to close out the month For example if I went up top here And I said I just want The month of December So I went from 12.01.22 To 12.31.22 And ran it Then you would think down here That it might give you the net income Just for the month of December And the rest would be in retained earnings But that's not how it is It's showing you the year to date number still In the net income And that's kind of how it has to work If you're going to have that automatic Like closing process So just something to keep in mind I'm going to change this back from 0.01.22 And then run it So now let's go to the income statement And let's just open this up piece by piece So income Well first of all Note up top you have a difference in the name It's January through December You might sometimes hear it say Called for the year ended For the year ended is kind of The more formal way that you might say it You could always change this title If you would like to Change the title But it indicates a beginning and ending point Also note that QuickBooks calls it A profit and loss report Which is fine But in formal accounting terms Oftentimes it will be referred to as An income statement So again you could change this up top To be called an income statement And then change possibly the date here To be for the year ended Or something like that If you wanted to do some more customization I'm not sure if you could change this range You can add it or remove it But you can't change the profit and loss We'll talk about that in the formatting later So that's just a little difference in the terminology A lot of times when you learn just accounting It'll be called an income statement Here it's called a profit and loss In essence the same report Then at the top of this We've got income Now income You might sometimes call revenue So if you look at an income statement You might call this first grouping Revenue Or you might call it income You want to keep that different From the subtotals and the bottom line Which is gross profit That's a subtotal along the way That's different than income Net income is different than income That's net of all the expenses That's the bottom line in essence Of the income statement So income or revenue generation That's the goal of the business So that's going to be the key point That's what we're trying to do We're trying to increase The revenue of the business And even when we look at the balance sheet That's kind of our primary objective We want to keep that in mind If I look at the balance sheet And I look at my accounting equation The reason we have assets in the business The reason we have it in a business account As assets as opposed to our personal account Is because we're kind of The assets are an investment in essence In the business Oftentimes we're investing in property Planting equipment So we put the capital assets Into the business To buy the property planting Equipment in order to generate Revenue in the future So revenue is the point The liabilities and equity Are the financing Those are the ways that we're financing the assets If we don't need the assets in the business We should give it to ourselves As the owner in the form of a draw Or dividends if it was a corporation So the assets are there as an investment To generate future revenue The liabilities and equities In essence are the way that we finance The assets in order to generate Revenue in the future The income statement represents The revenue that we have earned For a prior period Often reported in the format of a year A month or a quarter for example So then within the revenue We usually only have a couple accounts In our revenue or income type of accounts Because oftentimes we only do You know one or two things We focus on what we're doing To generate revenue And we purchase everything else But because this is a construction company We have a little bit more revenue Than you might otherwise expect Some common categorizations for many businesses Would be service revenue Versus the sale of product revenue These are common kind of breakouts That you might have in a business What you want to be careful of Is not breaking your revenue Out in too many accounts Because it can muddy up, cloud up Your income statement Well the common way that people do that Is they put revenue accounts in here That represent customers So you don't want to have a revenue account A different revenue account per customer Usually and one of the reasons You don't want to do that Is because you can break out that added information If you have a full service accounting system With other reports Breaking out the revenue by customer Now sometimes you can't If you don't use a full service accounting system So if you're creating your books From bank feeds Then you might not have to add a detail Because you're not using the natural reports Remember that the revenue accounts Are naturally going to be increased With an invoice and the sales receipt If you're properly using invoices And sales receipts to record revenue Then you should have a sub Ledger account that can break out By detail of customer and by Item inventory items Or service items that you're selling However, if you're doing gig work And you're just using bank feeds To generate your income statement account Then you're not going to have The added detail You might not have the sub-ledger accounts That can break out revenue by customer Or by item Because you're using a deposit form So you still might want to do that But in that case You might actually name your revenue accounts By your vendor You might say like YouTube revenue account Or Amazon revenue account Or platform gig work you're getting from You might just simply call that the revenue account That's kind of the exception To the rule So then we've got our total income Which is a sub-total along the way And then cost of goods sold You would only have cost of goods sold If you sell inventory Now remember that if you sell inventory There's a couple of different ways You might track inventory You might try to stick on a cash based System in which case You're going to record cost of goods sold When you purchase the inventory And then just record the sale side When you sell the inventory Instead of recording it as an asset first And then Decreasing the asset and recording Cost of goods sold when you sell the product And you would only do that If you don't have much inventory on hand And possibly if you're buying the inventory For a specific job for example But most of the time If you have significant inventory You record the inventory on the books On the balance sheet here As inventory Now you might do that on a perpetual inventory system Or a periodic inventory system Notice that the inventory Is an accrual account We're deviating from a cash based Because we have to Because the inventory is significant And therefore we put it on the books as an asset And we expense it as we consume it If we do that on a periodic inventory system I might track the inventory Of units on an external sheet Like excel And then record the purchases in inventory As an asset And then count my inventory And compare it to what I have in my Excel sheet My accounting equation for cost of goods sold Beginning inventory plus purchases Minus ending inventory Would then allow us to do an adjustment Decreasing inventory periodically At the end of the week Day month Or If you do a perpetual inventory system Then the inventory Is going to be recorded as cost of goods sold When we create A Sales receipt or an invoice And it will also have the sub ledger Impacted so it will decrease inventory And record the cost of goods sold Now cost of goods sold Is going to be the most important expense If you sell inventory If that's the primary thing you sell Then the highest cost In order to generate the revenue Will be the cost of goods sold typically Because that's going to be the most Expensive thing That's why it's such an important sub total For many companies that sell stuff And that's why we have this other Stop along the way to get to net income Called gross profit So gross profit as opposed to net income Is just the revenue Minus the cost of goods sold So we're just taking a pit stop along the way So we got the revenue of 10 to 0.77 Minus the cost of goods 405 Now the cost of goods sold is much lower In this case Because we do other things Other than sell The inventory in this case But if you just sold inventory You would think the relationship between Cost of goods sold and income Would be significant So then you got the gross profit And then you've got the biggest category Of all other expenses So the other expenses are categorized Like we normally think of them So we have things like advertising Automobile equipment Insurance we're labeling these items For the name Of what they're used for Once again not labeling them As the name of the vendor So in other words we're not calling This progressive insurance or whatever For our insurance We're just calling it insurance Or the insurance is for We're not calling the Deccan patio Joe's Contractor we're calling it Deccan patio because that's basically What we purchased in the system Now notice that when you group These items some of them are pretty straight forward Because you know the categories Because they're just familiar For business like repairs and maintenance They do this one backwards I don't know Why I would call it repairs and maintenance They call it maintenance and repairs And so on But sometimes you have Things that are specific to your business And when you set up your chart of Accounts that's what's going to be listing these items And you usually have the most variant In the expenses Depending on the industry that you're in And I think QuickBooks Online Still just gives you pretty much A generic chart of accounts No matter what industry you choose So therefore you might want to go into the chart of accounts And make adjustments to it When you first start a company file And what I would recommend for that process Is when you have your chart of accounts That you start You keep in general the chart of accounts That they provide you with Although you might make some tweaks to it at first And then as you do data input You're going to see Every time you do a data input You're going to see if the chart of accounts Has an account that is Relevant that fits And if it does you're going to use that one And if it doesn't And they have one that's closed But you don't like the name Like they put maintenance and repairs And you want repairs and maintenance Then you could go in here and edit the account To whatever you want it to be Instead of adding a new account That is very similar in name And then after like two months Of data input or so at least Then you could go into the chart of accounts And possibly remove Some of the accounts that you're not using That's what I would generally recommend If you're starting a new company file Or make them inactive So the chart of accounts is also a place I mean the expense Accounts are also a place where people Can get extreme on Either end either being very Detailed or being Not detailed enough So some people that are very detailed They make way too many categories And they make way too many Subcategories By doing that you're going to extend The chart of account is going to get Quite long or your income statement Is going to get quite long and the added Information the added detail Is actually going to be taken away Possibly from your decision making process Because there's just too much To really take in there Other people go the other way And they just don't add enough detail So you can't like if you were Just to have one account called expenses That wouldn't be enough detail More detail than that in order To make decisions and Just to fill out a tax return For it you can't just put on the tax return Expenses added up to $5,237 You got to categorize it somewhere So that's just one thing to kind of be Aware of you want to be somewhere in the Middle generally between those Two now notice that this Drop down this carat represents The account type these other Carrots are sub accounts so notice This one automobile it's Comment to have automobile and then Possibly the things that you spent on Automobile this is where it gets a little Confusing too because you might have fuel But you might have like insurance As well and you might have maintenance For example but insurance For example is one that you might group under Automobile or you might put under Insurance right so it gets a little bit Confusing to group Some of those the thing that's also nice About these sub accounts however Is that notice that Within the expense category because there's So many accounts if you're not Using account numbers it's going to Default to grouping these Accounts by Grouping these accounts by Alphabetical order within the expenses So using the sub accounts is a way that You can kind of group things together Without account numbers If you want to use account numbers That's another way that you can group Things but you got to be careful and That you're not you're using The account numbers properly I think We'll have a section on that so you can Kind of look on how to use account Numbers if you would like to Also note that you can Also change the sorting options To sort by Total descending and I'm going to run that one And then within the categories Down here if I scroll down To the expense categories You can see for example Within here Now I've got my highest number Within that category up top So it sorts the categories A little bit differently that's another Thing you can kind of test out and See if it gives you a more optimal Sorting pattern without Using account numbers I'm going to change it back to the default I'm going to go back up top and Let's say I'm going to sort I'm going to sort it by Here's the sort I'm going to sort it by Again scroll down Now note that As you add these These drop downs They give you a lot more Detail but they also make the report When expanded a lot larger Which Can be kind of an issue because You've added a line here You've added a line here and you've got the total That's added so it's a couple lines that have been Added however you can also Compress them when you want to Display in the report So you have the opportunity to have An extended version of the report Or a smaller version of the report Now also just realize That when we have these sub accounts There's other options that you can use For sorting and filtering that we touched on So if you have multiple locations For example you might try to use class tracking Location tracking Where you can basically make an Income statement that has multiple columns So that's another method that you can use That might be used in conjunction With or instead of Like a sub account system If you want to break out by location For example we saw the tags As well which is another way that you can Sort your data And something to keep in mind So when you start to think about Different kinds of sortings Do I want to have it in a sub account Like this or do I want to Make an income statement that has multiple Columns possibly using Future like class tracking Location tracking or the tags Which can get a little bit complex Because you can do similar things With different options Which we might touch on a little bit In future presentations So notice the default here Has a lot of these triangles for the sub accounts So I think Personally they went a little overboard on the sub accounts And the utilities down here Here's another one where you might say Maybe I want the gas and electric Phone under utilities Maybe I just want the telephone in its own account These days and just call gas And electric utilities Because I just think of gas and electric As in essence utilities These days it's kind of a default Just depends on your preference Okay so that gives us our Total expenses last time We left off on the gross profit Up top Which was at where was the gross profit The gross profit Is here At the nine seven So now we've got our expenses I'll collapse it of the five two So minus the five two Three seven point three one Gets us to our operating income The reason the operating income Is useful and is different Than net income is because That's the income where you're going to say It gives you the most predictive power Into the future Because you're saying these are things That I needed for operations These expenses were consumed In order to help me generate Revenue and they're things that I would Expect to happen again In the future in proportion to My income possibly And then you might have some other items Down below where you're saying hey look These other items which might be income Or expenses are not part Of my normal operations So you might put things down here And it will depend on you know Generally accepted accounting standards and whatnot Or different standards in terms of What they recommend should be Reported down here where you might have Your own kind of thought process for it So for example you might say That this is this is my net Income from normal operations And you might consider financing Which would be interest expense And possibly investments like Interest income as not part Of your normal operations so you might Say hey look the interest income and Expenses I don't want to put that In my net operating income Because it's not really part of my core Business although I had some expenses For interest income and expenses Therefore I'm going to put them down Here so that when I make Projections into the future I can see what is there Related to my business And what is there that's kind of Outside of my business down here And then get to the net income You also might say From generally accepted accounting standards Kind of concepts you might say If something is not likely to happen You know in the future It was an unusual event An unusual loss that Like a hurricane or something And you don't live in a place that has hurricanes And it just came out of nowhere And you had this big loss Well then you might report it Down here somewhere and say Hey look this was lost for this Totally way weird thing That I don't want to put up as my Operating income because I want to show my When I project into the future Which is part of the reason of the financial statements That I don't expect that to happen again Because it was an unusual event So that will then get you down To the net income This is the other net income And then that's going to get you down to the net income Which is the bottom line So we had this amount Minus The other expenses And the net So this is going to be minus The two nine one six Is going to get us down to The one six four two So that's the Income statement basically in general In future presentations We'll run some comparative income statements And so on in a similar Fashion as we did with the balance sheet And move on from there I'm going to go back to the first tab And just note that if I hit the cog drop down And scroll down to I'm going to scroll down to the business view I believe We've just been located here in The chart of accounts The chart of accounts is under the bookkeeping tab And the chart of accounts Under the business view and we've gone Into the reports which is under the Business overview No the reports Are in the Yeah that's right the business overview And then it won't take me to that other tab The business overview and then And here You've got your reports There it goes the reports right there That's where they are Alright