Why Is the Profit and Loss Report Important?
When you run a business, you probably spend a lot of time and energy working to make profit, so it makes sense to keep close track of how much income you’re generating and how much you’re spending. The profits are important to your business so that you can continue to spend less and less time on trying to bring in revenue and more time on developing a profitable business.
Running a profit and loss report is a step you’ll need to take if you want to improve your business’s performance. A P&L report helps you see if your business is making or losing money, so you can make more money.
How to Create a Profit and Loss Report in QuickBooks
The first thing you have to do to create a profit and loss report in QuickBooks is to run the income statement. A profit and loss report is all about the income and expenses of a single business. You don’t need to create a profit and loss report for each of your business’s transactions, though each transaction will have an impact on your profit and loss report.
In the home level of your business, click on the Profit Center and type in the word –Profit” in the drop-down menu.
Sample Profit and Loss Report
The profit and loss report in QuickBooks Online is the report you will use to examine and measure just how well your business is doing. QuickBooks Online is easy to set up and use. Every business owner needs to be confident in their operations so that they know whether or not they are making a profit. The Profit and Loss (P&L) report offers a clear and concise view of the income and expenses of your business, or a selected business unit.
The first, simple step is to create a new report by clicking File in the QuickBooks Online toolbar. From the dropdown that opens, select the type and description of the P&L report that suits your needs, and in the section titled Run a report check Run profit and loss (P&L) report.
That’s all there is to it. The P&L report will have three different sections, which can be rearranged and labeled as needed, for these sections:
Financial summary: This is the first section of most reports you will create in QuickBooks Online, and will always contain information about your balance sheet and income statement. The balance sheet tells you whether or not your business is making a profit. The income statement tells you how much you owe and how much you have.
How to Run an Income Statement in QuickBooks
Your income statement shows you the difference between what you owe and what you have in the bank. So as you can imagine, an income statement has numbers and charts. For instance, you can break down your income statement by each individual client or by the type of service you provide.
Addendum: Remember, if your business uses contracts then you will also have an additional line item to track on your income statement. Be sure to keep this in mind when reviewing your income statement.
Create a new Profit and Loss Report
Before you can generate your Profit and Loss Report, you need to create a Profit and Loss Entry for a Customer, Vendor or an Employee.
{1}. From the Home screen, select Customers to open the list of Customers.
{2}. Select the Customer Fakhri Ahmad to open the Customer’s Detail page.
{3}. Press the + sign at the bottom of the page to open the Create Customer form.
{4}. Only select the Income(Selling and Buying) option and press Add Customer to generate the Customer Account.
{5}. Go to the Home screen again. This time select Vendors to open the list of Vendors. Once you’re there, you will see the Add New button is replaced by the Create Report button.
{6}. Select New to open the Create Vendor form.
{7}. Select the Income(Selling and Buying) option and press Select Vendor to generate a Vendor Account for Fakhri Ahmad.
{8}. Go to the Home screen and select Employees.
{9}. Select the Employee named Fakhri Ahmad to open the Employee’s Detail page. Click the Create Employee button at the bottom of the page.
{10}. Select the Income(Selling and Buying) option and press the Add New button to generate the Employee Account.
Set Options for the Profit and Loss Report
Select Profit & Loss |Go to the File | Enter a Profit and Loss Documentation.
Select the appropriate Profit & Loss form number from the dropdown list.
Set the company name.
Create a report name for the document.
Select whether you want to allow users to download or print the document.
Click Save.
Click Run Now.
Click OK when QuickBooks prompts you to save your preferences.
The Profit & Loss form opens.
Map a Name for a Profit & Loss Account.
Map a Name for a Fixed Asset Account
Map a Name for a depreciation Account.
Map a Name for accumulated Depreciation Accounts.
Map a Name for a Stock Account.
Map a Name for a Cost of Goods Sold Account
Map a Name for a Selling, General and Adm. Expenses Account
Map a Name for a Compensation Expense Account.
Map a Name for a Inventory Account
Map a Name for a Employees Payroll Account.
Map a Name for a Payroll Tax Expense Account.
Map a Name for a Benefit Expense Account
Map a Name for a Deduction Account.
Customize Your Profit and Loss Report Further
If you want to delve a little deeper into your break-even analysis, QuickBooks Online allows you to customize your profit and loss report further. Implementing a customized report can help you determine the differential costs you incur to bring in additional revenue.
There are two ways to customize your profit and loss report. The first way is to jot down the details of what you sell at every price point and enter the costs associated with it.
By using this method, you learn what costs your business incurs to sell certain products at specific price points. Want to know how many people you need to sell a certain product to break even? Try implementing the percentage of mark-up method and see how many people you need to sell your products to break even.
Another way to customize your profit and loss report is to change the price by running a profit and loss report.
By running a profit and loss report with a new price, you can see how the price impacts the profits you make. This helps you understand when and if the price you charge for your product is advantageous to your business.
With these methods in hand, you can better evaluate how your prices can be used for greater profits.
Print or Email Your Profit and Loss Report
While you can easily pull up a Profit and Loss Report in QuickBooks Online using the Home screen or the Reports button on the toolbar, it’s also easy to print your Profit and Loss Report.
To print your Profit and Loss Report, simply click on the Reports button on the QuickBooks Home screen (or on the… button), then select the Profit and Loss by Using the … dropdown menu, and select the appropriate report.
It’s also possible to email a Profit and Loss Report in QuickBooks Online although you’ll need to have a printer or email compatible software already installed on your computer.
If your computer does not include the built-in function for emailing a document, you can use Microsoft’s free email server program, MSN Outlook Express.
Wrap Up
Although we often use different terms, there are strong similarities between the two management accounting terms “ profit and loss statement” (sometimes referred to as a –P&L” or –income statement”) and –ledger” (which can also be referred to as a –debit” or –credit”).
A profit and loss report outlines your business’s monthly financial activity (i.e., cash inflows and outflows, whether from customers, payroll or cost of goods sold) during a particular period of time.
The information on the profit and loss report is used by management to evaluate the past financial performance and to compare it to future potential performance. Such reports are especially important if you are just starting out or, perhaps, experiencing issues that affect your cash flow (for example, an extended slow period) requiring you to re-evaluate your cash reserves.