Regardless of if they’re indirect or direct expenses, they all tally up to give you your break-even point. One’s business’s direct cost might be another business’s indirect cost. We are talking about your utility bills, rent, bookkeeping and accounting fees, vehicle costs, payroll costs – you get the gist. Overhead expenses are other essential costs involved in running your small business outside of your direct costs. Now, that signage on your office building is a different story. Whether these expenses fluctuate in value or differ from month to month, as long as they are directly related to your income-producing activities, they are a cost of goods sold expense. Other examples of the cost of goods sold include importing and freight costs, contractor costs, and the software and subscriptions associated with delivering your product or service. For instance, locking pliers, an adjustable wrench and all the other equipment needed to get the job done are expenses involved in a Plumber’s cost of goods sold. Your cost of goods sold, also known as your direct costs, are the immediate costs associated with the sale of your goods or service. Your expenses typically fall into two categories: cost of goods sold and expenses. It also entails any other sources of income, such as interest received, capital gains or income from secondary business activities. The main chunk of this will be your primary business activities, the sale of your goods or services. Your income section encompasses any revenue coming into your small business. These sections can both be further broken down into specific sub-sections, depending on the business and how extensive its reporting requirements are. Your P&L has two main sections – income and expenses. Its easy to keep track of your unpaid and overdue. These two reports work best together, rather than apart, combining to give you a comprehensive look at both the financial performance and position of your small business. As a small business owner, you dont need to have an accounting degree to use the Xero Accounting app.
While your Balance Sheet spells out your financial position by listing all of your assets, equity, and liabilities, the P&L displays your financial performance by detailing your revenue and expenses. You can choose to look at a single P&L report all by itself or compare your profitability over different periods. Your P&L displays every transaction from a specific point in time the report can be monthly, quarterly, end of the financial year or any other period you desire. You see, your Profit and Loss Statement lists all your income and expenditure to help you understand your business performance and profitability – hence why it also goes by the name Income statement or P&L for short. When was the last time you read your profit and loss statement? If the answer was anytime over a month ago – we’re not here to scold, but we do encourage you to consider adopting some new, healthier financial habits.