A model of profitability for a company
Many companies check the balance in the checking account and depending on the amount of money, they know how profitable the company is. For smaller and medium size companies with limited activity, this works as an excellent management tool. As a company grows and more people an spend money and income comes form various activity, it is a good idea to generate a monthly and year end profit and loss statement for your company.
This will give you a window on where income is coming from and where money is being spent. Sometimes this can be tough to do, especially when things are not going well. That is why it is a good practice to print a Profit and Loss monthly as an early warning tool on the state of your business.
Profit and Loss
Add in sales income to a company e.g., invoices
- Subtract expenses or costs
- Difference is profit
Good months, e.g., more income than expenses
Poor months, less income than expenses
Bank account that holds the money and tracks actual money spent
Accounting Software, most often Quickbooks, that calculates profit and loss and categories for money spend and received
- Customer Records Management and operations that managers business operations, invoices and tracks collections.
When you reconcile these three systems, the accounting software will give you the Profit and Loss statement for your company