Reading A Profit And Loss Statement For Dummies

By | March 31, 2023

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If you want to know how much money your therapy practice is making, your income statement (or “income statement”) is the place to start.

Reading A Profit And Loss Statement For Dummies

Reading A Profit And Loss Statement For Dummies

Your income and expense reports tell you how much money is coming into your business, how much you’re spending, and how much you’re keeping as income. They are essential for monitoring the pace of your personal practice and planning for the future.

How To Read Profit And Loss Statement ?

Along with your balance sheet, the income statement is one of the key financial statements you should prepare regularly to monitor your company’s financial health. (If you use the accrual method of accounting, you can also use the statement of cash flows.)

Profit and loss accounts are prepared monthly or quarterly. At the end of the year, you prepare an annual income and expense statement that provides the information you need to file your taxes.

You create a profit and loss statement by taking all the accounting records for a specific period – usually a month or a quarter of the fiscal year – and summarizing them in one document.

Example: To create an income and expense statement for the month of April, you review your general ledger and:

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This is a super simplified explanation. The more complex the financial side of your business, the more difficult it is to create income and expense reports. Debt, amortization payments, and multiple sources of income can complicate matters.

If you have a salaried accountant or bookkeeper, they can prepare an income and expense report for you. If you do your accounting using software, whatever application you use should have built-in functionality for generating profit and loss reports.

Remember that your income and expense reports are only accurate if your accounting is also accurate. If you don’t keep track of all your expenses and income, your income and expense report won’t reflect the truth (no matter how much you pay your accountant every month!).

Reading A Profit And Loss Statement For Dummies

Along with your balance sheet, income and expense statements form the foundation of financial reporting for your private practice. But what is the difference between the two?

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Like the income statement, the balance sheet is prepared monthly or quarterly. But the balance sheet contains other information. While the income statement tells you about your income and expenses, the balance sheet tells you about your assets and liabilities.

In a nutshell, your assets include all of the monetary value that your company owns, including cash. Liabilities, on the other hand, are usually in the form of money you owe.

Another way to think about it: Your balance shows the money you currently have and the money you have to pay back. Your income statement shows the money you earn and spend.

If this is your first time looking at an income and loss statement for your practice, it can be easy to get overwhelmed.

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Besides, it’s a question of “How much do I earn?” In addition, it helps you know what questions to ask. and “How much am I spending?” – so that you can make the most of the available information when reviewing the income statement.

Here’s an example of an income and expense report for the private practice of a fantastic therapist named Jesse Goode, a self-employed entrepreneur with an office in the bustling center of Everytown, Illinois.

Please take a moment to read the profit and loss statement above. For the purposes of this example, it’s pretty simple.

Reading A Profit And Loss Statement For Dummies

Above you will find the private practice name and contact information. If the statement was prepared by an accountant, you may also find the name of the accounting firm or individual.

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The document is designated as a profit and loss statement. Most importantly, you can find the period covered by the statement – in this case April 2022

The left column shows the types of income (this may also be called “Gross Income”); The right column shows the dollar amount for each income stream.

Jessie generates most of its revenue from its customers (“Services”). But he writes an e-book, self-publishes it, and makes money from it (“Selling”).

Here we find Jesse’s expenses for the month. Rent, electricity, internet and phone costs are part of the overhead costs of his practice. It also pays monthly for internet marketing service and website hosting.​​

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This is why the bottom line is called the bottom line: The last item on Jesse’s income statement lists his total income (“Profit/Loss”) for the month. (This may also be called “Net Income.”) This is the amount left over from Jesse’s income after deducting all of his expenses.

Let’s assume that Jesse prepares a monthly income and expense report and has been doing so since the day he opened his doors. It gives a significant insight into the performance of his business and helps him make future plans.

Setting aside time each month or quarter to review your financial statements is more than just good financial hygiene. This will help you find ways to increase your income or expand your practice.

Reading A Profit And Loss Statement For Dummies

An income statement can tell you how much you’re making. But they don’t tell you how to make your personal business profitable in the first place. For that, check out our article on how to keep your therapy practice profitable.

Profit And Loss Statement (p&l)

This post is for informational purposes only and does not constitute legal, business or tax advice. Anyone should consult their own attorney, business advisor or tax advisor regarding the matters discussed in this announcement. A few years ago I was explaining to my manager that I was getting a little bored and they told me to learn how to read a profit and loss (P&L) statement. At the time it sounded suspiciously like “Stop wasting my time,” but working in a leadership role changed my perspective a bit: it’s actually a surprisingly useful thing to learn. The income and expense report is a map of the company’s operations and is an effective tool for guiding the most relevant areas to dig.

Although reading a P&L is very in-depth, it takes you from zero to one and takes a little less than thirty minutes. I begin by reviewing the components of an income statement, describe the steps I use to review an income statement, provide an example of how to use those steps, and conclude with instructions for finding practical income statements for public companies.

To review the income statement, we must read the income statement, and I chose the summary of consolidated financial information on page 18 of HashiCorp’s S-1 filing. It’s helpful to keep it handy so you can always refer to it.

Have many! First, let’s look at the titles above. The first three columns show the income from 2019 to 2021. All numbers here are in “thousands”, meaning that $18,503 is actually $18,503,000, and so on. The last two columns show six-month windows. We are trying to get a picture of the whole business, focusing on annual indicators.

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When looking at internal data, it is especially important to understand where the table moves from historical data to forecast data. When you’re talking to an early-stage startup, it’s very common to include somewhat optimistic projections for the current year as part of their financials. Public companies, on the other hand, never share forecasts. All S-1, 10-K and similar filings are historical data. There are cases where the reported data initially appear to be estimates, for example some companies end their financial year in January, which is the case for Gitlab: their 2021 financial year only runs until 31 January 2021, so their 2021 results

Although the forecast was released on November 4, 2021 (so most of Gitlab’s 2021 figures won’t be available until the FY 2022 report)

There are a few more lines, but from the point of view of understanding the job, you can ignore everything else.

Reading A Profit And Loss Statement For Dummies

Finally, it’s worth taking some time to familiarize yourself with non-GAAP. The Financial Accounting Standards Board defines accounting rules called GAAP, Generally Accepted Accounting Principles, and most financial statements you’ll see are labeled GAAP or non-GAAP, such as this segment of HashiCorp’s 10-K statement.

Reading A Profit & Loss Statement.

There is little consistency in how companies calculate their non-GAAP financial statements, which makes them difficult to reason about. Companies often deduct non-recurring or non-recurring expenses. Assuming you’re looking at your company’s internal earnings and losses, it’s a good idea to ask your finance team to clearly explain how the non-GAAP numbers differ from the GAAP definition. Generally, non-GAAP provides a more accurate understanding of a company’s performance, but the objective of the non-GAAP measure is

Now that we’ve covered some of the components of profit and loss, let’s move on to their actual analysis. The first step is to switch to ours

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