Online Income Statement (P&L) Analysis Lessons

The income statement probably gets more attention than the other two major financial statements - the balance sheet and the cash flow statement - and probably more attention than it deserves. It shows the net income (or net profit, as it is also called), which represents revenues minus expenses, but doesn't show much about the stability of the business.

• Why Income Statement?

• Interpreting Income Statement

• Components of Income Statement

• Retained Earning Statement

Think of it this way: the income statement shows the top edge of a house being built. It shows the new bricks and mortar being laid on, piece by piece. The faster the bricks are being laid and the more plentiful they are, the happier the homeowner is.

The balance sheet is the foundation. It displays the result of all of the previous brick laying. It doesn't matter how fast the new bricks are going in. If there are gaps in the foundation or if the house wobbles from the quality of the brickwork, the house will fall.

Recording the Sales Cycle

In this session, you will learn the components of the sales cycle, how to account for credit sales, how to treat discounts, how to manage the accounts receivable ledger, how to minimize and account for bad debts:

A business has cash, buys (or makes) products to sell- or provides services - and gets paid for them, thereby converting cash to purchases to accounts receivable back into cash.

The operating cycle is composed of two pieces: the sales cycle and the purchases cycle. In any business, these two necessarily overlap, but it's easier to understand each piece if we separate them.

What Makes up the Sales Cycle?

The sales cycle consists of a collection of activities:

• Recording cash sales and Sales Discount

• Recording credit sales and setting up the accounts receivable transactions

• Recording cash receipts and subsequent reductions in accounts receivable

• Partial Payment and Preparing invoices

• Preparing statements of account

• Analyzing and writing off bad debts

We'll walk through each of these activities in detail and look at the accounting behind them. Where relevant, we will first talk about what happens in "real life," and second, about what accounting you must do to mirror the transaction.

Recording the Purchases Cycle

In this session, you will learn the components of the purchases cycle, how to account for cash and credit purchases and how to track accounts payable

The purchases cycle encompasses many activities in the business:

• Purchasing inventory and Cost of Goods Sold (COGS)

• Purchasing supplies

• Cost of Goods Sold Categories

• Common Expenses Categories

• Accounts payable sub-ledger

• Tracking cash payment

This session looks at each of these activities and their associated bookkeeping in turn.

Tax Planning

In this session, you will learn the concept of tax integration, how to maximize income and minimize taxes, how to plan your personal revenue streams:

• Minimizing Tax versus Avoiding Tax

• What is Tax Integration

• Understand Tax Brackets

• Deferring Tax Owing Versus Getting Rid of It Altogether

• Remuneration - Getting money out of business

Granted, tax is not one of the top ten most fun things to talk about on anyone's list. However, tax planning is an area that you and your accountant should work on together. The way in which your profits are taxed affects how much money you get to keep. This session gives you an overview of some of the strategies and issues to keep in mind. It's always important to be familiar with the tax legislation in your jurisdiction before you embark on any strategy. The last thing you want is the nasty surprise of a big tax bill.