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Ballener Ongoing Bookkeeping

Accounting Basics: Profit & Loss and Balance Sheet Reports

Do you know the difference between your P&L and your Balance Sheet? We can explain exactly what each report means – and how it reflects your current performance as a business.

Understanding your finances is a vital part of running your business. The Profit & Loss Report and the Balance Sheet are both key reports when it comes to getting in control of your company’s financial health.


What’s a profit and loss statement?

Your Profit & Loss statement is commonly called your P&L, but is also referred to as your income statement or statement of earnings. It’s a full breakdown of your company’s revenue (money coming into the company as sales and other business income) and your expenditure (direct costs, overheads, expenses and other costs).

Careful observation of your P&L allows you to track your revenues and expenses over a set period of time. You can then look back over the period and see exactly where you’re making money, and where you’re losing money. The more you make, and the less you lose, the greater your profits will be at year-end.


The P&L statement is good for:

  • Giving you a breakdown of all revenues and relevant costs and expenses

  • Showing the profit and loss figures over a set period of time

  • Summing up your profit and loss for the period to gauge if you’re profitable


What’s the balance sheet?

The Balance Sheet gives you a snapshot of your company’s financial health at a given point in time, based on the following accounting equation: ‘Equity = Assets - Liabilities’


The Balance Sheet shows you the company’s:

  • Assets (the things the company owns, including cash)

  • Liabilities (the things the company owes other people)

  • Equity (retained earnings plus the funds you originally invested as shareholders)

Unlike the P&L – which shows you the revenues and expenditure over the course of a given historic period – the Balance Sheet is best seen as a ‘screenshot’ of your current finances. In a nutshell, it shows you what the company is worth on paper right now, based on the current numbers in your accounts.


The Balance Sheet is helpful for:

  • Assessing the current financial position of the company

  • Providing evidence of your financial position to banks, lenders and investors

  • Giving potential buyers an idea of the company’s tangible net asset value, if you plan to sell up.

If you’d like to know more about the basics of your company accounts, we can help. We’ll be happy to run you through your latest management and explain exactly what each report means – and how it reflects your current performance as a business. Give us a call on 0429 022 474 or shoot an email to mary@ballenerongoing.com.au.

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