Speed
0.75×
1×
1.25×
1.5×
2×
4 min 7 sec
0:00
The first full year
0:24
A film, not a photo
0:47
Income for the year
1:13
Expenses, line by line
1:48
The bottom line
2:38
The P&L in Beeswax
3:04
Recap and quiz
Accounting 101
·
Reading the numbers
·
Episode 24
The Profit & Loss
(A film of the year, not a photo.)
Northlight's first full year, line by line. Read Maya's profit and loss from income to the bottom line, and see what it leaves out.
profit and loss
income statement
margin
Transcript
0:00
It's the end of Northlight's first full year, and Maya's accountant has asked for the profit and loss. Maya opened it, closed it, made a cup of tea, and opened it again.
0:13
Today: the profit and loss. What it tells you, what it doesn't, and how to read one without needing a lie-down.
0:24
The profit and loss, or income statement, covers a period of time. A month, a quarter, a year. Think of it as a film of the business, not a photo.
0:34
It asks one question. Over this period, did we earn more than it cost us to earn it? Income, minus expenses, equals profit. That's the whole plot.
0:47
First, income. Services, ninety-six thousand. All the work Maya and Priya invoiced this year. On the accrual basis, that's what was earned, not what was banked.
1:01
Plus reimbursed expenses, twelve hundred. The stock photos and printing, passed through to clients. Total income, ninety-seven thousand, two hundred.
1:13
Then expenses. The big one: wages and contributions for Priya, just over forty thousand. In a service business, people are usually the biggest cost. That's normal.
1:25
Contractors, twelve and a half thousand. Rowan, mostly. Rent, software, insurance, the phone, bank fees. Interest on the loan. A thousand of depreciation for the laptop. And eighteen hundred of bad debt, courtesy of Kestrel Events.
1:43
Total expenses, sixty-seven thousand, two hundred.
1:48
Which leaves the bottom line. Ninety-seven thousand two hundred, minus sixty-seven thousand two hundred. Thirty thousand profit. A margin of about thirty-one percent.
2:01
Maya reads it twice. Then does a small, dignified dance in the kitchen.
2:07
Now, what isn't on it. Maya's drawings, twenty-four thousand. Not an expense. The loan principal she paid back. Not an expense. The laptop itself. Only its depreciation. None of those are costs of running the business, so none of them are here.
2:26
Which is why profit isn't cash. Thirty thousand of profit, and yet the bank holds under twelve thousand. The balance sheet explains where it went. That's next time.
2:38
In Beeswax, the profit and loss shows income in green and expenses in red, account by account, with the profit, or the loss, at the bottom. Click any account to see every transaction behind it.
2:52
Switch the accounting method between cash and accrual. And tick show previous financial year, to put last year right alongside. It's the quickest way to spot what's changed.
3:04
So. The profit and loss is a film of a period. Income, minus expenses, equals profit. It follows the accounting method you choose. And drawings, loan repayments and asset purchases aren't on it, which is why profit isn't cash.
3:22
Quick one. Income, eighty thousand. Expenses, sixty-two thousand. But four thousand of those expenses are actually the owner's drawings, filed in the wrong place. What's the real profit?
3:37
Have a think.
3:41
Twenty-two thousand. Take the drawings out, and expenses are fifty-eight thousand. Eighty, minus fifty-eight.
3:51
Maya's accountant has sent back one comment. It just says: nice.
3:57
Next time: the balance sheet, and closing the year. Where the thirty thousand actually went, and what happens to it on the first day of year two.