What is a Profit and Loss Statement? What of the firm financial data is in this report?
- Profit and Loss, a.k.a Income Statement is the statement of activities relevant to income and expenses of the firm.
- It uses all Income, Cost of Goods Sold (if any) and Expense Accounts on the Chart of Accounts.
- Profit and Loss Statement covers a period of time, e.g. month, quarter, annual.
- What is a Balance Sheet?
- Balance sheet is a "snapshot" of the firm's financial position at a specific moment in time. It provides the data on what the firm owns and what it owes.
Components of the Balance Sheet
- Assets, e.g. cash, advanced client costs, property (buildings, furniture, equipment)
- Liabilities, e.g. Monies in Trust, notes payable, wages payable, taxes payable,
- Equity, i.e. book value of the firm, e.g. paid in capital, retained earnings, net income. NOTE: Owner's Equity on the Balance Sheet is not an indication of the firm's market value.
What is a Trial Balance Report?
The trial balance is a report run at the end of an accounting period, listing the ending balance in each general ledger account. The report is primarily used to ensure that the total of all debits equals the total of all credits, which means that there are no unbalanced journal entries in the CosmoLex system. If your Trial Balance is not balanced, following could be potential causes:
- You have not moved prior-year(s) net earnings to Retained Earnings. Below article provides exact steps on how to move Net Income to Retained Earnings at beginning of each fiscal year. OR you may not have dated it correctly. (see below).
- You have used 3500:Income and Expense Summary for any purpose other than moving Net Income to Retained Earnings. In some special cases, specially related to data migrations related situations, 3500 is used purposefully to make one-sided entries to balance trial balance report.
- Why doesn’t 3500: Income and Expense Summary on my balance sheet match the net income on my Profit and Loss?
- Check the date range filter to ensure both the Balance Sheet and the Profit and Loss are identical.
- If the amounts still do not match, other plausible reason could be prior year's income was not moved to retained earnings (see below). Balance sheet may include all of the net income from the prior year less amounts moved to retained earnings. You must manually move the net income amount from the prior year into retained earnings at the beginning of the new fiscal year (see below).
- At year-end, how do I move the amount in 3500: Income and Expense Summary to 3400: Retained Earnings?
- At this time, CosmoLex does not have the automatic functionality to move Net Income to Retained Earnings. Until the feature is added, we recommend following:
- Best Practice: This function is best done by your accountant after all adjusting entries have been made. Your accountant can make a journal entry dated 1st of the fiscal year and Debit 3500: Income and Expense Summary and Credit 3400: Retained Earnings to make these changes (if its net profit, not net loss. Debit/Credit gets reversed otherwise).
Modified on: Sun, 14 Jan, 2018 at 5:55 PM
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