If you started a business and dabbled in Quickbooks, you probably realize that it is has very useful features. The ability to keep tracks of income and expenses, pay vendors and employees, and accept payments from customers are just the starting point for your bookkeeping. The best part of Quickbooks is the ability to generate useful reports. There are reports for everything in Quickbooks. This article focuses on arguably the two most useful reportsthe Profit and Loss Statement and the Balance Sheet.
Profit & Loss
The Profit & Loss statement (P & L) provides an overview of all income and expenses for a given time frame. The more precise the bookkeeping, the more detailed the P & L will be. If you own a flower shop and would like to know how much of sales was related to delivery charges, the P&L will tell you. If you are a doctor and would like to know how much of your income came from private patients, the P & L will tell you. On the expense side, the P&L will itemize everything from advertising expense to repairs and maintenance.
The Balance Sheet
Think of the Balance Sheet as a snapshot in time of your business. The Balance Sheet will itemize the balance of all given bank accounts, the outstanding liabilities for credit cards, accounts payable, loans payable, etc. it will also list the equity in the business. Do you own a rental investment and would like to know the outstanding principal balance? Do you have employees and need to know how much in payroll tax withholdings are due to the IRS? The Balance Sheet will tell you.
There are three main purposes to the financial statements.
1) Internal - Every business owner wants to know how the business is performing. Is the business making money? Are expenses too high? How much cash is in the bank? What are the liabilities? The financial statements together serve as an internal indicator of how the business is doing.
2) External – If you are applying for loan or refinancing, banks will likely request your latest financial statements.
3) Taxes – Tax time is not the time to start scurrying around for bank statements and receipts. When it comes time to file your business tax return (and personal tax return for a sole proprietor or real estate investor) you can rest assure that a simple download of your financial statements will likely be all that’s needed for tax preparation.