Profit & Loss and Balance Sheet Reports

The Chart of accounts form the profit & Loss report, which is your income less all of your expenses (this is your profit) and the balance sheet report, which is the assets you have and liabilities you owe and how much your business is worth to you, the Equity.

Your bookkeeping system can produce these reports for you and it’s really important that you check your profit and loss report regularly as this will show you how your business is going. Are you making money? Are you spending too much on certain products? Are you buying too many assets that aren’t really earning you any money?

The financial side of your business is vital for your success. It helps you to set your prices, working out what products or services are working for you, where your money is going, how much to put away for income tax and GST.

That's a fun request! Since the blog post is about finance and business, an imaginative story example that reinforces the importance of tracking the P&L should be a quick, memorable anecdote.

Here is an imaginative story example you could insert into the blog post to highlight the lesson learned from the P&L:

Example: A Lesson in Profit and Loss

Imagine two bakers, Alice and Ben, both running popular local shops.

Alice, the Diligent Baker, used her bookkeeping system like Myob or Xero. She checked her Profit and Loss Report every week. When she noticed her Cost of Goods Sold (COGS) for almond croissants suddenly spiked, the P&L instantly raised a red flag. She realised her almond supplier had quietly increased prices. Because she caught the change immediately, she quickly found a new, more cost-effective supplier, saving her hundreds of dollars that month. Her Net Profit stayed healthy.

Ben, the Busy Baker, however, just focused on the cash register. His shop was always buzzing, so he assumed he was making money. When he finally looked at his numbers three months later, he was shocked. His total revenue was high, but his expenses—especially for specialty flours and delivery fees—had secretly eaten away his entire profit. He was busy, but he was barely breaking even! He had been buying too much of one expensive ingredient (like buying too many assets that aren't earning money) and didn't even know it until the P&L revealed the hidden truth.

The Lesson: Just like Alice, using your P&L regularly allows you to be proactive and make small, immediate course corrections that keep your business profitable. Don't wait three months like Ben to find out you've been working for free!

Need a hand setting up a bookkeeping software or just want the professionals to take care of it - contact us for a 15 min bookkeeping consultation.