If the balance is like a picture, a snapshot of a moment, the result statement is like a movie. Think of the following sequences: balance snapshot, then payout movie, then another balance snapshot at the end of the movie and so on. It shows what's going on in a business over a period of time, usually a month, quarter or year. Keep in mind that the left hand side of the balance sheet (Device List) is the debit page, on the right (Sources and Capital) the credits. The task of the income statement (income and loss or P & L only) is to show how the company's equity changed during the business period by category. It shows that either the company brought money that increases equity (credit) or lost money, which reduces equity (burden).
This knowledge allows you to guess the collections and credits in the profit and loss statement. If the company has made money we know, we increase the equity balance, then the credits have to go through the debts, so the income is the credit because more income (and credit) is needed to increase the equity in the balance sheet so that the expenditures are burdens they must be. If the company lost money, the costs exceeded the revenue, so the items exceeded the credits. Whatever the "bottom line" in the profit and loss account, the gain or loss is transferred to adding or subtracting the equity at the year-end balance sheet.
All these findings serve to answer the question: "What's going on in my business?" so the owner does not guess or curse and hurt you. Another thing I see a lot is relying on the balance of the bank regardless of how it tells what's going on at the store. That's not good. The owner needs some information to make better, longer-term decisions. A good accounting system efficiently collects this information and can easily, quickly and efficiently transfer the reports to the owner. If you think that you are running a good business, depending on how much money you have in the checking account, you really need to go back and learn the basics of business accounting if you do not want to deceive false information!
The Owner Declaration answers the question of "HOWEVER made or lost money"? This is why revenue and expenditure are grouped into categories or "accounts". These reports are categorized by other categories, such as "price of goods sold", which are direct costs, such as materials and labor. Another major category of expenditures is "Sales, General and Administrative", as well as SG & A, which can be sold separately in Sales Costs and then in the G & A category. Properly designed and put into operation, it quickly shows the owner what area of the business is all right and which are not compared to others or past history. Efficiency, for example, means that the owner quickly sees the "General and Administrative" (header) increase over time, specifies a particular account that is the culprit and narrows the search to the accounts that affect the account. Quick and effective, not guessing! This is a good accounting system for you.
Finally, I share the burglary and credit secret insight with you. Hopefully, it is clear that each transaction contains equal amounts of debt and credit. After all, things must stay in balance! If you know one page, you'll figure out what the other side is. OK, here is the secret: most of the usual daily transactions that are part of the company's business with the outside world, ie transactions involving income or expenses include the profit and loss account and the balance sheet. You sell your sales: Credit Sales (I / S) and Debit Accounts Receivable (B / S). Enter an Account: Accounts Payable (I / S), Payable Credit Accounts (B / S Responsibility)
Payments or payment of accounts are transactions but do not increase revenue or expense as such. You receive payment: Cash and credit claims (both B / S asset accounts). Pay an account: payable accounts (Liab) and credit cash (both B / S accounts). Note the difference, a transaction that is part of normal business with the outside world affects both statements. Therefore, if the business lends $ 100,000 from the bank, then obviously it is not the customer's revenue, though it increases cash. In this case, cash and long-term credits (both B / S accounts) may be charged. Buying such a $ 100,000 equipment has nothing to do with customer transactions (normal costs), such as Debit Equipment and Credit Cash.
In summary, only external customer transactions affect the balance account as part of the profit and loss account on the other side of the transaction. Therefore, there is a properly conducted accounting system for the owner. Cash in the checking account grew, so we have to pay money, do not we? Bad! Where did growth come from? This is the question! Did you just borrow money? You have collected a lot of claims (sales of last months), but has little sales in recent months? Remember the fundamental question of whether the ENTERPRISE generates money? This question is whether the Owner Declaration or the Profit and Loss Statement Responds
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