This section of the help file explains how account, customer and supplier transactions affect the different Financial Statements in Accounting.
The Financial Statements are the Profit and Loss Report and the Balance Sheet.
To know more about how Accounting Calculates the Financial Balances, click here.
When you generate a Profit and Loss Report the system will give you the option to calculate Cost of Sales based on Purchases or Sales.
If you are making use of Analysis Codes, select your project, departments and cost codes.
Select your date range in the date range drop down menu. You have the selection to preview the report as monthly, quarterly, yearly, month to date, quarter to date, year to date, life to date, custom to date, last month, last quarter and last year. If you select the custom dates option, you can select the date ranges from the calendar look up fields.
You can select to group the report by month or quarter in the Group By field. You can also compare all the amounts with the previous year amounts by ticking the Compare With Last Year tick box. If you want the report to display all your Reporting Group Detail, check the check box.
You can compare your profit and loss report with a budget that you created by ticking the Compare with Budget tick box.
You can also display a budget variance on the profit and loss report.
Select the Budget that you want to use in this report.
Select whether you want the cost of sales on the report to be displayed for Sales or Purchases.
If you are using Decimal Values, check this check box.
The Exclude Accounts option will only be available when running the profit and loss based on sales. When you run your Profit and Loss by sales, you have the option to exclude the Item Adjustments system accounts as well as any other Cost of Sales accounts you used to record your inventory movement on your balance sheet.
When you select to group the Profit and Loss report, the Print Report and Email Report options will grey out and you will only be able to view the report and export the amounts to Excel. A PDF version of the report will not be available when you select Group By options or Comparatives.
This is an example of a Profit and Loss Report generated by Accounting:
You can change the dates to preview the report for in the Date Range drop down menus. Click on the Refresh button to refresh the details on the report.
The following table explains the Profit and Loss Report’s sections:
|Sections||Explanation and Composition||Calculation|
|Sales||The Sales line reflects all of your items and service items that you have sold to your customers. This amount includes customers that are on a Cash on Delivery basis and customers that are 30 day accounts or more. The Sales section also includes all of the accounts that are assigned to the Sales Account Category, for example the Consulting Revenue.||Sales = [Physical Item Sales + Service Item Sales] + Accounts assigned to Sales Category|
|Cost of Sales / Purchases||The Cost of Sales / Purchases (COS) line reflects the amount you had to pay to acquire your physical or service items in order to sell them to your customers. These costs may include delivery charges that you had to pay to get the items to your premises, and so on. The COS section also includes all of the accounts that are assigned to the COS Account Category including Purchases described below.||COS = [Cost of Physical Items Sold + Cost of Service Items Sold] + Accounts assigned to COS Category|
|Purchases||The Purchases line reflects the amount you paid to suppliers for items bought during the reporting period.These costs may include delivery charges that you had to pay to get the items to your premises, and so on.||Purchases = [Physical Item Purchases + Service Item Purchases]|
|Item Adjustments||The Item Adjustments line reflects the value of all the item cost and quantity adjustments.||Value of item adjustments|
|Gross Profit||The Gross Profit section is the difference between your Sales and COS. If this amount is a positive amount, it indicates that you have made money. If this amount is a negative amount, it indicates that your COS were more than your sales, which indicates that you have not made money. This is a simple calculation.||Sales – Cost of Sales = Gross Profit|
|Other Income||The Other Income section lists all of your other income accounts that generated income for the business. This may include additional services that you charged your customers for, such as delivery charges and so on. Accounting automatically includes discount received from suppliers for cash payment or for meeting payment terms.||Total of Accounts linked to the Other Income Category including discounts received|
|Expenses||The Expenses section lists all of your expenses that you have incurred to run the business such as salaries, operational costs (telephone, rent etc.) and it can also include monies that you had to pay suppliers for non-item based charges like penalty fees on late payments, interest on an overdue account, delivery charges and so on. Accounting automatically includes discounts allowed to customers for cash or early payment, as well as bad debts.||Total of Accounts linked to the Expense Category including discounts allowed and bad debts|
|Net Profit/Loss before Tax||This section indicates if you have made a profit or loss after taking in account the Other Income and Expenses of your business before deducting Tax.||Gross Profit + Other Income – Expenses = Net Profit/Loss before Tax|
|Income Tax Expense||This line includes the total of all the accounts assigned to the Income Tax Expense Account Category.||Total of Accounts linked to the Income Tax Expense Account Category|
|Net Profit/Loss after Tax||This section indicates if you have made a profit or loss after taking the Tax payments of your business into account.||Net Profit/Loss before Tax – Tax = Net Profit/Loss after Tax|
Remember that you can drill down to specific reports from the preview of the Profit and Loss Statement and any other report. From the Profit and Loss Statement, click on any line and a specific report will display detailing how the amount was calculated.
This is an example of a Balance Sheet generated by Accounting:
The following table explains the Balance Sheets’ sections:
|Sections||Explanation and Composition||Calculation|
|Non-Current Assets||Your Non-Current Assets, previously known as Fixed Assets, are assets that are not easily converted into cash, such as property, motor vehicles and equipment. This section includes all of the accounts that are assigned to the Non-Current Asset Account Category.||Non-Current Assets = Accounts assigned to the Non-Current Assets Account Category|
|Current Assets||Current Assets are those assets that are expected to generate income for the business within a specified time frame, usually a year. This section includes Items, Trade Receivables and all your Bank and Credit Card Accounts. This section also includes all of the accounts that are assigned to the Current Asset Account Category.||Current Assets = [Items+Trade Receivables + Bank and Credit Card Accounts] + Account assigned to Current Asset Account Category|
|Non-Current Liabilities||A Liability is defined as an obligation of an entity arising from past transactions or events, such as loans and tax. A Non-Current Liability, previously known as Long Term Liability, is a liability that will not be settled within the next Financial Year. This section includes all of the accounts that are assigned to the Non-Current Liabilities Account Category.||Non-Current Liabilities = Accounts assigned to the Non-Current Liabilities Account Category|
|Current Liabilities||A Current Liability is a liability that is expected to be settled within the current Financial Year. This section includes Trade Payables, Tax Payable and all of the Accounts assigned to the Current Liability Account Category.||Current Liabilities = [Trade Payables + Tax Payable] + Accounts assigned to the Current Liabilities Account Category|
|Net Asset/Liability Value||This value represents the solvency of your business which means the ability of a business to cover its debts with its assets. Solvency can also be described as the ability of a business to meet its long-term fixed expenditure and to accomplish long-term expansion and growth. The better a company’s solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate and is undergoing bankruptcy. Solvency is a different concept from profitability, which refers to the ability to earn a profit. Businesses can be profitable without being solvent (for example, when they are expanding rapidly). Businesses can be solvent even while losing money.||Nett Asset/Liability Value = Total Assets – Total Liabilities|
Remember that you can drill down to specific reports from the preview of the Balance Sheet and any other report. For example, from the Balance Sheet, click on the Tax Payable line for the Tax Report to display.
Accounting maintains the following “system accounts” which are calculated for the financial reports based on processed transactions:
Profit and Loss Report
|Sales||This is the total of all your Item sales, exclusive of tax (GST).|
|Cost of Sales/Purchases||This is the Cost of all physical Item Sales, based on the weighted average cost of the Item at the time of sale, plus the Cost of all service Item Purchases.|
|Purchases||This is the total of all your items bought, exclusive of tax (GST).|
|Item Adjustments||This is the total of all item adjustments.|
|Discount Received||This is the total of all discounts applied when processing payments to Suppliers.|
|Discount Allowed||This is the total of all discounts applied when processing receipts from Customers.|
|Bad Debts||This is the total of all Customer Write-Offs.|
|Trade Receivables||This is the total of all outstanding Customer balances.|
|Items||This is the value of all Items on hand. The value of an Item is calculated as: [The Quantity on hand at the time of the report] x [The Average Cost of the Item at the time of the report (calculated chronologically based on the date the transactions were processed) in Accounting]|
|Bank Accounts||This is the balance on the respective Bank and Credit Card Accounts. These balances are affected by Customer Receipts, Supplier Payments, Account Receipts and Payments, and Tax Payments and Refunds.|
|Trade Payables||This is the total of all outstanding Supplier balances.|
|Tax Payable (Invoiced Based)||This is the total of all Output Tax on Sales, less all Input Tax on Purchases and includes any Tax Payments or Refunds and Tax Adjustments.|
|Tax Payable (Payments Based)||This is the total of all Output Tax on Receipts, less all Input Tax on payments and includes any Tax Payments or Refunds and Tax Adjustments.|
|Tax Provision||When you use the Cash Method Tax system, the Tax provision account accumulates the tax (GST) amounts of unpaid customer and supplier invoices.|