What is a P&L? A Profit and Loss Statement (P&L) is one of the cornerstone pieces of a business’ financial reports. As the name suggests, the P&L determines the profit or loss that a business has made in a given period (usually 1 year). A P&L will typically illustrate two different profit figures, namely Gross Profit and Net Profit (EBIT and EBITDA are also included for larger entities). Gross Profit is the profit (or Loss) earned after only accounting for the expense of Cost of Goods Sold. In other words, this figure aims to demonstrate how much profit the business makes solely from the mark up on its products. A healthy Gross Profit figure is a fundamental part of a viable business. A P&L differs from a Cash Flow Statement in that it accounts for all expenses incurred, not just cash items. Depreciation is an example of a non-cash expense that will reduce an entity’s net profit but will not affect its cash balance. The P&L is important because it illustrates whether or not the business has achieved its main objective: making a profit. Every business needs to stay profitable to survive in the long run. If the P&L concludes the business has been making a loss, decision makers can use this information to review the business and make the necessary changes to return it to profitability. Net Profit (or Loss) is the figure that is used to determine whether or not the business is profitable by deducting all expenses incurred during the year from the total revenue earned. A positive Net Profit figure deems the business profitable. For in-house and public courses visit www.colouraccounting.holstgroup.co.uk Call 0845 456 4000 to speak to a consultant now. Search for ‘Colour Accounting’: What is a Balance Sheet, Cash Flow Statement and P&L? What is a Balance Sheet? A balance sheet is a financial statement that provides a snapshot of the assets, liabilities and shareholders’ equity in a company. The reason this form of financial statement is referred to as a balance sheet is because each side of the statement balances out the other. In other words, the assets of the company on one side are funded by the liabilities and shareholder’s equity on the other. An easy way to visualise the balance sheet equation is as follows: Assets = Liabilities + Equity Assets are the valuable things that the business owns or controls. Their primary purpose is to generate income and profit, either directly or indirectly. Assets may include any of the following:         Accounts receivable Cash Inventory Prepaid Expenses Property Equipment Investment real estate Intangible assets “The more financially informed you are, the better your business and money management decisions will be.” What is a Cash Flow Report? A brief list of liabilities will include:       Accounts payable Corporate bonds Tax liabilities Deferred tax assets Unearned revenue Provisions as a result of legal proceedings Equity is comprised of:  Capital and reserves issued to equity holders of the parent company  Non-controlling interest in equity Essentially, a balance sheet provides a financial snapshot of a company at a specific time. In a corporation, investors and managing executives use this information to make important decisions for the direction of the organisation. Ever heard the saying “Cash is king”? There are many reasons businesses fail. Poor sales. Poor management. Poor marketing. But there is one reason that can be attributed to the overwhelming majority of business failures – poor cash flow. A cash flow report is a statement that displays four key pieces of information:     Cash balance at the start of the year Cash received during the year Cash spent during the year Cash balance at the end of the year This information is necessary because it allows users to see how the company has been managing its cash position, and whether it has sufficient funds in the bank to meet its cash obligations as they become due. Profit and Loss statements can be misleading – in most cases accounting rules require that sales are recognised even if payment hasn’t been received. Cash flow reports only recognise cash that has physically been received from customers and is at the company’s disposal. The key factor in staying solvent is receiving more cash than you spend, and this is exactly what a cash flow report determines. Hence the reason many stakeholders consider the cash flow report to be the most important report in a company’s financial statements. Small business owners may use balance sheets to evaluate the overall financial health of the company. Balance sheets also help to identify and interpret business trends in both large and small businesses. The ability to interpret balance sheets is just one important element of your overall financial literacy. Financial literacy is crucial to managing several aspects of your personal and professional life. The more financially informed you are, the better your business and money management decisions will be. Call 0845 456 4000 to speak to a consultant now Call 0845 456 4000 to speak to a consultant now What is a Balance Sheet? A balance sheet is a financial statement that provides a snapshot of the assets, liabilities and shareholders’ equity in a company. The reason this form of financial statement is referred to as a balance sheet is because each side of the statement balances out the other. In other words, the assets of the company on one side are funded by the liabilities and shareholder’s equity on the other. An easy way to visualise the balance sheet equation is as follows: Assets = Liabilities + Equity Assets are the valuable things that the business owns or controls. Their primary purpose is to generate income and profit, either directly or indirectly. Assets may include any of the following:         Accounts receivable Cash Inventory Prepaid Expenses Property Equipment Investment real estate Intangible assets “The more financially informed you are, the better your business and money management decisions will be.” What is a Cash Flow Report? A brief list of liabilities will include:       Accounts payable Corporate bonds Tax liabilities Deferred tax assets Unearned revenue Provisions as a result of legal proceedings Equity is comprised of:  Capital and reserves issued to equity holders of the parent company  Non-controlling interest in equity Essentially, a balance sheet provides a financial snapshot of a company at a specific time. In a corporation, investors and managing executives use this information to make important decisions for the direction of the organisation. Ever heard the saying “Cash is king”? There are many reasons businesses fail. Poor sales. Poor management. Poor marketing. But there is one reason that can be attributed to the overwhelming majority of business failures – poor cash flow. A cash flow report is a statement that displays four key pieces of information:     Cash balance at the start of the year Cash received during the year Cash spent during the year Cash balance at the end of the year This information is necessary because it allows users to see how the company has been managing its cash position, and whether it has sufficient funds in the bank to meet its cash obligations as they become due. Profit and Loss statements can be misleading – in most cases accounting rules require that sales are recognised even if payment hasn’t been received. Cash flow reports only recognise cash that has physically been received from customers and is at the company’s disposal. The key factor in staying solvent is receiving more cash than you spend, and this is exactly what a cash flow report determines. Hence the reason many stakeholders consider the cash flow report to be the most important report in a company’s financial statements. Small business owners may use balance sheets to evaluate the overall financial health of the company. Balance sheets also help to identify and interpret business trends in both large and small businesses. The ability to interpret balance sheets is just one important element of your overall financial literacy. Financial literacy is crucial to managing several aspects of your personal and professional life. The more financially informed you are, the better your business and money management decisions will be. Call 0845 456 4000 to speak to a consultant now Call 0845 456 4000 to speak to a consultant now What is a P&L? A Profit and Loss Statement (P&L) is one of the cornerstone pieces of a business’ financial reports. As the name suggests, the P&L determines the profit or loss that a business has made in a given period (usually 1 year). A P&L will typically illustrate two different profit figures, namely Gross Profit and Net Profit (EBIT and EBITDA are also included for larger entities). Gross Profit is the profit (or Loss) earned after only accounting for the expense of Cost of Goods Sold. In other words, this figure aims to demonstrate how much profit the business makes solely from the mark up on its products. A healthy Gross Profit figure is a fundamental part of a viable business. A P&L differs from a Cash Flow Statement in that it accounts for all expenses incurred, not just cash items. Depreciation is an example of a non-cash expense that will reduce an entity’s net profit but will not affect its cash balance. The P&L is important because it illustrates whether or not the business has achieved its main objective: making a profit. Every business needs to stay profitable to survive in the long run. If the P&L concludes the business has been making a loss, decision makers can use this information to review the business and make the necessary changes to return it to profitability. Net Profit (or Loss) is the figure that is used to determine whether or not the business is profitable by deducting all expenses incurred during the year from the total revenue earned. A positive Net Profit figure deems the business profitable. For in-house and public courses visit www.colouraccounting.holstgroup.co.uk Call 0845 456 4000 to speak to a consultant now. Search for ‘Colour Accounting’: What is a Balance Sheet, Cash Flow Statement and P&L?