 QuickBooks Online 2022 Profit and Loss P&L Income Statement Overview Get ready because it's go time with QuickBooks Online 2022 Online in our browser searching for QuickBooks Online Test Drive Going into the Test Drive choosing the United States version of it and verifying that we're not a robot Sample Company, Craig's Design and Landscaping Services This is holding control down scrolling up just a bit to get to that one to five percent We also have the free 30 day trial version open just so we can compare and contrast the business view and the accounting view if you don't have access to this at this time that's okay we'll use it more in the second half of the course Going back on over to the sample company We're going to be opening up a couple tabs up top and we'll say right click on the tab up top and duplicate that tab Go back to the left again right click on it again and duplicate the tab again As that is thinking I'm going to go back to the 30 day free trial and just to see where the reports are located in the business view they're in the business overview and then they're in the reports if you were to change the view by going to the cog to the accounting view it would be similar to what we're looking at here in the sample file back to the sample file Let's open up the profit and loss this time this is going to be our second or other favorite financial statement report one of the two major financial statement reports send the reports on the left hand side it will typically be in the favorites area although it will also be in the business area down below you got different variants of the profit loss profit loss as a percent of total income profit loss comparison profit loss detail profit loss year to date comparison profit loss by customer profit loss by month and then we just want we just want the standard profit and loss at this time now note that financial statement terminology will typically call it an income statement sometimes you'll hear it called the profit and loss or AP and L which is the terminology used by QuickBooks so I'm going to close up the hamburger up top let's do a range change let's bring the profit loss from 010121 to 123121 and run it and then I'm going to go to the tab to the right and open up the other report that being the balance sheet report by going to the reports on the left hand side opening up the trustee balance sheet the other big financial statement report closing up the hamburger range change up top for the balance sheet from 010121 to 123121 and run that report now remember that these two reports are going to be the major kind of financial statement reports the balance sheet and the income statement meaning if I go back to the first tab over here every time we enter something that has a financial transaction related to it which will typically be in the plus button up top invoices for example sales receipts expenses bills pay bills and so on they will typically be impacting at least two accounts and those two accounts will be in some format on either or both the balance sheet and the income statement so those are your major two financial statements that are being constructed from financial transactions all other reports as we saw in prior presentations will generally give you more information break out more detail organize the data in some other way from the major financial statement reports of the balance sheet and the income statement income statement otherwise known as the profit and loss report so I'm going to close this out I'm going to go down to the accounting area and let's open up our chart of accounts so you'll recall that the chart of accounts is going to be in order by type typically and what this is going to be is all the accounts that we could post financial transactions to every account that has something posted to it in the period that is being covered by the financial transactions up top and the forms that will be used to create the financial transactions will then be showing somewhere on the balance sheet and the income statement so if there's any activity in the period to any account on the chart of accounts then you would think that account would generally be on the financial statements balance sheet income statement and if there's not any activity then it might not be present of course in the balance sheet and income statement unless we forced it to view all accounts okay let's go back on over to the income statement the income statement represents how we're doing over a time frame so you'll recall if we jump over to the balance sheet one more time last time we looked at the balance sheet as the accounting equation so in its most basic form its assets equal liabilities plus equity now that is the double entry accounting equation that's the double entry accounting system in formula as opposed to in debits and credits how does the income statement fit into then the double entry accounting system because it is part of the whole system well it's really part of the story on the equity section you can think about it as part of the story on the equity section you can think about the equity section as the bottom line of the balance sheet assets minus liabilities equaling equity and then that represents where we are at at this point in time the next question you want to know about is how did we do what is our past performance to get us to this point in time because that's the information we're possibly going to use to see what we're going to do in the future what we're going to project to be our future performance that's what the income statement is so the income statement is basically saying it's kind of like if you were saying how how far can I drive my car to in the next time frame in the next month or something like that we're going to reset the odometer to zero and we're going to count up from there until that time frame is up and see how far we went on the income statement the bottom line number of the income statement then being the net income so when we think about all these types of accounts we can call them temporary accounts because they're all accounts that are basically like we say with that's resetting of the odometer to start the time frame to see how far we're going in a certain time frame so for example the income accounts are going to be reset at zero and we're going to see how much income we can generate over the certain time frame like a month or a year and all the other accounts the expense accounts are basically the things that we had to consume they also start at zero and we're seeing possibly like how much gas it took for us to get to the you know the mileage that we needed to get to that's basically the comparison that we have let's do the same we did last time and try to close up all the carrots from the inside out on the income statement so I'm going to close these up and try to get to the most condensed format trying to close up the inner ones first here and so there we have that and then I'll close up the landscaping cost to goods sold and then so that looks pretty good okay so at its most basic level if you had a single-step income statement there's really only two types of accounts that are generally involved in it and that would be income or revenue and expenses so the most basic type of income statement you can say hey look I'm generating revenue this is what I'm incurring over this time frame in revenue and then you've got your expenses those are the things that we had to consume or use in order to generate the revenue in the same time period the difference between the two being the net income and the net income will roll into as we saw when we looked in the balance sheet the equity section on the balance sheet see this net income of one six seven six four six is the same as the net income on the bottom of the income statement now that would be in a single what we would call a single-step income statement now we could get more complex in an income statement which could give us some more detail but could also give us some more complexity whereas we might have some pit stops on the way down to net income so for example we've got we've got income up top let's just look at the income I squished it down one more time income and then if we sell inventory we'll have what's called cost of goods sold cost of goods sold representing the inventory that we're selling in order to generate the revenue if you simply buy and sell inventory the cost of goods sold is going to be a huge part of your expenses therefore we often want to break it out in its own category and then have a subcategory a pit stop on the way down to the bottom line number of net income so in this case the ten thousand two hundred seventy seven cents minus the four oh five gives us the nine thousand seven ninety five seventy seven gross profit which is not the same thing as net income it's also not the next same thing as just net income or revenue because we're subtracting out the cost of goods sold the big line item for inventory related expenses and then we have all other expenses we could call these operating type of expenses this is where the largest category of account types will typically fall because normally on the income side of things we only do a couple different things in order to generate income hopefully the dollar amount of income will be larger or the income incurred that was generated will be larger than the expenses but in terms of the things we spent money on versus the things we do to generate revenue in large category there's going to be a lot more categories of things we spend money on so there's going to be the most kind of room for your own kind of personal interpretations of what categories of expense accounts and how to shape those categories will be usually down here then we have the net operating income this is the net income from operations it would be the net income or bottom line and unless you have some other kind of line items that you put on down below and these other expenses are going to be items that you're saying hey look these aren't part of the normal expenses these aren't part of my normal operations often people put interest income interest expenses capital gains and losses on sales down here in the other area because you don't expect them to be repeated in the following year and what you want to do on the income statement is try to look at past performance in order to judge what you're going to do in the future and if you have these items that aren't part of your normal operations by putting them down below you're saying hey look these are things that were income and expenses but they're not things that we expect to happen continually they're not part of our normal operations so we put them down below to get down to then the net income on down below so just some quick notes in terms of terminology let's do the same thing we did with the balance sheet just go through it from top to bottom look at the terminology from accounting terminology to sometimes when the quick when QuickBooks might deviate from a standard financial statement reporting to how the income statement is constructed comparing and contrasting the line items to the chart of accounts on the first tab which are the accounts that are being pulled over in order to generate the income statement account so we'd be down here like the expenses and income categories so we got first the fact that the name is the profit and loss now remember if normal financial statement if you if you take accounting courses you're going to probably have the name in your head of an income statement and the it could kind of take some getting used to always call it a profit loss or a P and L so that's the first thing you can consider as a bookkeeper you could easily change the name here and if you're dealing with like an auditor or someone who has more formal accounting knowledge and not a bookkeeping professional in QuickBooks they might prefer the name income statement and if you could just change the name on income statement for external reports then it might make certain clients more comfortable with it with terminology that they're more comfortable with so that's the first thing to know then the top number is income a lot of times people change the category as revenue but they they chose a long time ago to call it an income category you can't really change that too easily because that is the category that's given in the account type so we have the account type when we add accounts of income type of accounts let's adjust this by type I'm going to hold control scroll down just a bit and scroll down so these are income type of accounts down here that is what's generating this dropdown so if I go into the income accounts now this particular company has a whole lot of different income accounts normally and that's because it's a landscaping job cost service company normally you don't want too many income accounts and oftentimes one of the errors that people make or one of the things that makes their income statement a lot more burdensome to deal with is we tend to want to put an income statement account by customer and by inventory item in other words you try to make an income account for like every customer that you have or at least your big customers and you don't usually want to do that because you can generate other reports that can break out the income by customer so what you want on the income statement is the major category that you have for incomes other people break down income by having income by actual item that they sell too many inventory items or service item categories you want to have the big service item categories and big inventory categories possibly but you don't want to be listing out every type of income item that you have on the income statement because again you can usually generate other reports to get that more detail and if you have it all on the income statement you're going to have a very large income statement instead of a summary report that you can expand on with other supplemental reports and then we've got the cost of goods sold so if I open the cost of goods sold usually there's only one account for cost of goods sold because it represents the expense of the inventory that you're selling then we have all the expenses so all the expenses and by the way these are normal financial statement account categories cost of goods sold total cost of goods sold and gross profit now these expenses notice what the normal kind of accounts that they set up are general chart of accounts they used a lot of sub accounts are nice look how they kind of format here but they can also be burdensome because they add a whole lot more detail this could be a one line item thing here and now it's three lines that's a lot of real estate it's kind of taken up so if I go back to the first tab here and scroll down just a bit you can see what it looks like down here in these items on the income here's the labor on income line items cost of goods sold here's that one so here's the fuel and they set it up if I hit the drop down and edit it as a sub account of the automobile so that's where you're getting this sub account so when we look at the triangles here some of the triangles are due to the account types such as the cost of goods sold and the income accounts and then some of the other triangles are due to sub accounts such as this automobile because they made the fuel a sub account so then we've got the equipment rental insurance the job expenses again they made a sub account and then they made a sub sub account and put the job materials in here and then the legal and professional and again you can see how many line items of sub total line items that are being added here adding a little bit more complexity and length to the statement we've got the legal and professional they put the sub accounts of accounting bookkeeping and lawyer there's nothing that says you have to do that so you could change that if you so choose you might just want an accounting like one line item for your accounting one line item for bookkeeping or possibly put accounting and bookkeeping together and possibly one line item for your lawyer you could instead of having them as sub totals if you wanted to change that you can go back to the first tab and you can scroll down those items down here by simply taking them out of the sub account it shouldn't mess up anything in terms of the numbers that are in there although it'll just adjust where that account is located you're not deleting any of the financial data because you're not deleting the account you're just moving where it's going to show up on the income statement so for example if I took this if I edited this and I said I want to take this out of a sub account and just put it in accounting and change where it's located because now it starts with an A and it's in alphabetical order so if I scroll back down we're going to say somewhere on the income statement we're going to have these items I went way too far down on the expenses there's the accounting up top right here if I go to my financial statements and I refresh it or run it again run it again holding control scrolling up just a bit then we've got our cost of goods sold and now the accounting is up here instead of down under that sub category notice the subcategories also give you a little bit of control over the ordering of your accounts the other way you can get control over the ordering of your accounts is to have account numbers in place as well because then you can assign where something's going to go by account number so here we have another drop down which seems like a little excessive here for the equipment repairs because there's only one thing in it and then we've got the meals and entertainment the rent utilities this is another one where you could say do I want utilities usually people at this point the default often is to say utilities is going to have gas and electric in it and then possibly break the phone out separately that's another way that you might do this which is fairly standard these days or do I want this sub-account utilities electric or do I want the gas broken out in it's own account which you might want to do if you spend a lot on gas or a lot on electric and you want to track them individually that would be a personal preference with regards to your bookkeeping needs and so here we have the total expenses and then the net operating income and then in the other expenses they put miscellaneous now I wouldn't really miscellaneous is kind of that catch-all account not very descriptive of an account but you'll often have accounts down here like other interest income possibly or interest expenses down in the other income and expenses area then you have the total here and then you finally get to the net income down below that net income then will close out into the balance sheet and you can see it basically here in the balance sheet now once again this closing out into the balance sheet like this isn't normal for normal financial statement purposes QuickBooks does that to kind of show you the connection to financial statement and the balance sheet notice if I roll if I roll this up into the next time frame going from 010122 to 123122 then the whole thing is going to change there's not going to be a lot of data in it because there's not much activity happening in the following period that's different than if I go to the balance sheet and I was to roll this up 0122 to 123122 there's still a lot of data in the balance sheet because the balance sheet is as of a point in time the accounts don't roll over we don't start the odometer over on the balance sheet it shows where we are at a point in time and the income statement we start the odometer over and on the income statement for QuickBooks we usually set the year end if it's a calendar year end then we can kind of think of the odometer generally starting over in January right if you could it's going to go up through the year you could start over in January although of course you could run a report for just a month you could run a report just for February or March and say 030131 what did I do here 0301 21 to 0331 21 and run a report just for that that month there's nothing in that month you could do it for just November let's say 1101 21 to 1130 21 and run a report just for a month see the activity just what we have done performance just for that month