Understanding your Income Statement

The income statement — also called the profit & loss, or P&L — lists income, then expenses, then what is left. It is the report most owners mean when they ask “how did we do this month?”

You do not need to memorize account names. You need to know what belongs at the top, what belongs in the middle, and why the bottom line can be right while still feeling unhelpful.

Start at the top: income

Income should be the work you billed (or cash you took in, if you are on a cash basis). If deposits, GST collected, or owner transfers are sitting in income, the P&L is telling a louder story than the business earned.

Then the costs of doing the work

Materials, subcontractors, and job costs belong close to income so you can see whether the work itself pays. When those costs are dumped into a generic “supplies” or “office” account, the P&L still totals — it just cannot tell you which jobs are worth repeating.

Overheads and the leftover

Rent, insurance, software, vehicle costs, and similar expenses are the cost of being in business. Subtract those and you get net income for the period. That leftover is not the same as cash in the bank, and it is not a tax bill. It is the starting point for a better conversation: is the work profitable, and are overheads in line?

• Income that is actually sales, not GST or transfers
• Job costs sitting with the work they belong to
• Overheads you can explain in a sentence
• A net number you would be willing to show someone

If the report feels messy

Uncategorized expenses, personal spend in the business, and accounts nobody can explain all make the P&L harder to trust. Cleaning those up is bookkeeping work, not a personality test. BlueNova Books prepares reports so they can be read — and reviewed with you when you want that conversation.