This is my take on things, there are those that may disagree.
I am also including the only accounting joke I have created “What is the difference between Russian profit and American profit?
A Profit and Loss Statement is one of three important financial measurement tools. It captures five areas of financial measurement.
There are two methods of recognizing income and expense.
Cash Based Accounting will only recognize income when the money is in the bank and will only recognize expense when it is paid.
Accrual Based Accounting recognizes income as soon as it is billed and recognizes expense when you receive the invoice.
I prefer Accrual Based because it shows the complete financial picture, however you must remind yourself that Accrual Based Accounting may not reflect reality if everyone billed has not yet paid and if you have not paid all your bills.
That’s why the Balance Sheet was invented.
Among other things it accounts for the money people still owe you (Accounts Receivable) and the money you have not yet paid (Accounts Payable)
Revenue: The money you receive for doing the work you do. I like to measure everything as a percentage of Revenue, so Revenue always is 100%
Cost of Sale: The money you spend to do the work. I only count costs that can be directly tracked to specific jobs. If a cost is shared between two or more jobs, it should go into Overhead. I.e., …you cannot accurately track the amount of gasoline used by your truck for a specific job so usually gasoline is a line item in overhead.
Next week rest of the profit and loss
