22 SAFE & VAULT TECHNOLOGY | January/February 2023 www.savta.org BUSINESS SPOTLIGHT Demystifying Your Income Statement be helpful if you have many accounts and possibly if you prefer to force a different order in which your accounts are listed in your chart of accounts. The default list order is usually alphabetical, within certain boundaries. You can also move the placement of accounts, but if you do, keep in mind that a parent-level account will carry with it any related child-level sub-accounts. Account Name This is the common name of the account. Type This pertains to the financial statement (balance sheet or in- come statement) category description. Financial Statement This column would not be part of your chart of accounts, but I added it to illustrate how the accounts that are listed would be related to each of your two primary financial statements. Balance Although not shown because of space limitations, your chart of accounts would also include a column for “balance,” reflecting the current balance amount for each account. I did not include such a column, nor are actual numbers provided. Setting Up Your Company’s Chart of Accounts in Accounting Software After you install a software program such as QuickBooks on your computer, you will need to set up your company or compa- nies. In order to make this setup process easier, QB provides an electronic questionnaire. Beyond the obvious information about your company, probably the area of most influence initially is the general ledger chart of accounts. Based on your answers in the setup questionnaire, QB chooses a canned selection of ac- counts that is most likely appropriate for your type of business. But, you can add, delete and/or change your accounts later on. Conclusion The income statement, or P&L, is one of the two primary fi- nancial statements that you need to manage your business and comply with taxing authority requirements. This P&L keeps score for a one-year period and then resets for the next year. Numbers representing losses on your P&L are often presented within brackets, e.g. ($xxxxx), and are sometimes in red color. The cumulative results of previous years’ profits or losses will appear on your balance sheet as retained earnings under the equity section. The general ledger (GL) is the heart of any accounting system, and the chart of accounts is the heart of the GL. These “accounts” are where transactions are recorded in electronic buckets representing the various categories and subcategories that comprise the line items on your P&L. Expanding the categories and subcategories of your P&L can help a business owner or manager keep score of performance results but, more importantly, it provides valuable insights into the economics of your company. Use this tool and gener- ate both summary and detail versions so you can either just see the bigger picture or drill down to learn more details. As an example, instead of just a sales category, add meaningful subcategories to your chart of accounts, such as: Product sales Repair sales Installation sales Other sales Total Sales In addition to listing the dollars for each line item on your P&L, add percent of sales columns for each of the line items so that you can see what percentage of sales each subcategory and line item represents and how they are trending over time. After reading and absorbing this article, hopefully you’re now more comfortable with the basic concepts and have achieved at least a rudimentary understanding of a basic income statement/ P&L. Don’t be intimidated by the terminology; every industry has some. Best wishes for success. The topic for our next article in this series will be “Demys- tifying Your Balance Sheet,” where we will discuss the basic terms and setup to help you understand your company’s finan- cial position at a particular moment in time. Noel Flynn is a degreed business management consultant with global senior leadership experience, including more than 20 years in manu- facturing, wholesale distribution and consulting sectors of the security industry. Noel has been a senior executive, officer, board director and adviser to not-for-profit and for-profit companies in numerous industries worldwide. This includes being an ALOA SPAI board member since 2011, and he is also an ACE instructor, developing and teaching business management. Contact him at [email protected]
