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 


Reconciliation

Most companies calculate this over a year or 1/1/2014 to 12/31/2014. Most have 
  • Good months, e.g., more income than expenses 
  • Poor months,  less income than expenses 
By using a year, you can start fresh and it also coincides with paying taxes on profit. Many companies like to do this on a calendar monthly basis, so they are not surprised at end of year by any expanses.   They close out the month to make sure all the financial and business tools are all looking at the same data.  

To reconcile your accounts, you need:
  1. Bank account that holds the money and tracks actual money spent
  2. Accounting Software, most often Quickbooks, that calculates profit and loss and categories for money spend and received
  3. 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