Income statement / profit and loss

An income statement, or profit and loss report, provides information on your business's income and expenditures

The income statement displays the balances of all sales (income) accounts and all cost of sales and expenses accounts, then subtracts expenses from income to give a figure for gross and net profit.

It can be found under Reports > Accounts > Income statement (profit and loss).

Understanding profit

Net profit and gross profit

When calculating your profit, it is important to distinguish between your gross profit and your net profit.

Gross profit is the profit you make when only considering your cost of sales. The costs involved in the gross profit calculation are directly related to the sale, and generally scale as you sell more.

Net profit is your overall profit - your "bottom line". In addition to your cost of sales, net profit also factors in your fixed costs - for example, rent and wages. These costs are not directly related to your sales and generally do not change, regardless of how much you sell.

Here's an example profit calculation:

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Transactions which affect the income statement

The following actions create accounting which impact the income statement:

  • Income
    • Invoicing a sales order or sales credit
    • Entering quick bills and credits for customers
  • Cost of sales
    • Shipping sales
    • Receiving goods in on sales credits
    • Manually adding, removing or revaluing inventory
    • Purchase price corrections on purchase orders
  • Direct expenses
    • Entering bills for shipping suppliers
  • Overheads
    • Entering bills for overheads
    • Entering wages and other overheads
    • Accounting adjustments such as depreciation expense

Cost of sales

The cost of sales depends on what you paid for the inventory to begin with, which can vary with each purchase order. The first in first out (FIFO) method of inventory valuation is used to keep track of inventory costs. However, using this methodology means you cannot know the exact cost of sales until the goods have actually been shipped.

Profit-at-a-glance

Since cost cannot be known until the items have shipped, prior to that point the cost is estimated using its price on the cost price list associated with the sale. This provides profit at a glance.

Profit at a glance is the expected profit, which may not necessarily be the actual profit you will make. It provides an early indication of profit to assist in decision-making, but may be different to the final value posted to the income statement.

Income statement format

The income statement format is fixed and can't be amended. The format differs slightly between US and UK accounts.

US income statement UK profit and loss
  • Income
    (4000 to 4499)
  • Cost of goods sold
    (5000 to 5999)
  • Gross profit
    (= Income - cost of goods sold)

 

  • Expenses
    (6000 to 7999)
  • Net ordinary income
    (= Gross profit - expenses)

 

  • Other income
    (4500 to 4999)
  • Other expense
    (8000 - 8999)
  • Suspense
    (9000 to 9999)

 

  • Net profit
    (= Net ordinary income + Other income - Suspense) 

 

 

  • Sales
    (4000 - 4999)
  • Purchases
    (5000 - 5999)
  • Direct expenses
    (6000 - 6999)
  • Gross profit
    (= Sales - purchases - direct expenses)

 

  • Overheads
    (7000 - 7999)
  • Other
    (8000 - 8999)
  • Suspense
    (9000 - 9999)

  • Net profit
    (= Gross profit - Overheads - Other - Suspense)

 

Brightpearl automatically displays four periods of one month (the current month plus the three previous months) Use the filters to view statements as of a specific date, or for a particular department, project or lead source.

Filtering the income statement

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The income statement can be filtered to display multiple periods on the same report.

Filter Description
Periods Select this option to display multiple periods on the same report.
View Select the number of periods to display (up to 12)
periods of

Select the size of the period. Choose from:

  • 1 month
  • 2 months
  • 3 months
  • 6 months
  • 12 months
to

Select the last period to be displayed on the report, up to the current month.

For example, selecting "View 4 periods of 2 months to November 2021" will produce a report with a column for April - May 2021, June - July 2021, August - September 2021 and October - November 2021. 

Dates Pick a date from and a date to to display the income statement for that period.
Channel, lead source, project Pick a journal assignment to filter by.

Timing of cost of sales accounting (deferred COGS)

When cost of sales accounting is active, cost of goods sold journals are always created when the items are marked as shipped.

However, you may choose when the values are recognized on your profit and loss using the accounting settings.

Learn more about deferred cost of goods sold here.

Video

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