When you look at a P & L (Profit and Loss) what do you see?

Most see a bunch of numbers that don’t make any sense.

What do they typically do next?

Shy away from looking at it & talk about something else.

Point being is they simply don’t understand what they are looking at as it was never been explained to them visually.

They literally don’t “get the picture”.

Accounting is the language of business and it explains the story of the business.

So what story does a P & L tell us?

It shows:

* How much revenue the business made from its day to day operations compared to last year and budget?

* How much profit is left from selling goods and services?

* How much profit is available to pay for the overheads of the business?

* How do overheads compare to last year, against budget and relative to revenue ?

* What bottom line profit did we make as a business – is it up or down compared to last year and did we meet our budget?

In order to “get the picture” one would need to understand Accounting principles & concepts such as:

* When do we record a sale versus an expense?

* How do we treat prepayments and accruals?

* Why cash is not the same as profit ?

If you’re Accounting literate you will get what I’m talking about….if not you have probably shied away from this post.

I love explaining it this way to get non-Finance people to broaden their thinking when reading & interpreting financial information.

Join our 1 day Accounting Made Easy course to become Accounting literate.

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