Use this step to:
- add accounts,
- delete accounts,
- edit Month 1 amounts,
- Set the default monthly growth rates for Months 2 - 12.
Sales Month 1
Enter your first months sales here.
Sales tax collected or paid is not included on any part of the income statement.
For a retail establishment that does not offer any terms, recording a sale is easy. The sale occurs when the customer pays and walks out the door with the merchandise. For companies that offer terms or require a deposit recording the sales is not so straight forward. You will need to figure out when to record the sale.
Recognition is the process of recording an item in the financial statements.
Revenues are recognized when:
- realized or
- realizable and earned.
Realized is when products are exchanged for cash or claims to cash.
Realizable is when related assets received are readily convertible to cash or claims to cash.
Earned is when the products are delivered or services are performed.
An attorney who requires a deposit will recognize the sale when the service is performed and not when the deposit is paid. A furniture retailer of offer terms will recognize the sale when the furniture is delivered, which maybe well before they receive the money.
Revenues are inflows of assets or settlements of liabilities (or both) from activities of the entity's central operations. Gains are increases in net assets from peripheral or incidental transactions of an entity. An example of a gain is selling equipment that was depreciated for more than its book value. Gains are generally unplanned events, and therefore will normally never be part of a business plan.
Some companies may have revenues that are not part of the companies primary operations. For instance, a retailer with unused space, may choose to sublet the space. The rent collected should not be classified as a sale, but under a section entitled Other Income Expense. Unfortunately, the Profit / Loss Statement does not have a section entitled "Other Income Expense", however you can enter a contra expense or (a negative expense) which will have the effect of increasing net income.
Cost of Goods Sold Month 1
Classify expenses directly related to Sales here. If your companies sales where $0 these expense would also be $0. These Expenses are known as variable expenses.
Since the Cost of Goods Sold is directly related to Sales, they will grow in direct proportion to each other and there Growth rates will be the same. Therefore you only need to calculate your cost of goods sold for the first month and then just make sure the growth rates for the cost of goods sold is equal to the growth rate for sales. If you add new products to your product line or change your method of manufacturing products you may have to adjust your cost of goods sold. Adjustments can be made on the Profit / Loss Statement Months 2 - 12 page.
Expenses
Items that vary directly with sales (are directly related to sales) should be classified under cost of goods sold. Item listed under Expenses should be primarily fixed costs.
Generally you should use about 10 expense accounts. Rather than list each and every item select your company's largest expenses and then add an account named "Other Expenses" and group miscellaneous items into that account.
Add New Expense
You should use about 10 expense accounts, however you can add up to 50 expense accounts. Generally Rather than list each and every item, select your company's largest expenses and then add an account named "Other Expenses" and group miscellaneous items into that account.
After you add an account you should rename it. The accounts are arranged alphabetically, so once you rename it will likely move up or down.
Costs that are directly related to sales should be classified as cost of goods sold and not listed as an expense.
Monthly Growth
The Profit / Loss Statement will be for the first 12 months following the Plan Begin Date.
Rather than enter an amount for each month you set a growth rate. Normally the growth rate is 0 for Expenses and 1 - 5 percent for Sales and Cost of Sales.
Sales and Cost of Goods Sold should be growing at the same rate. Expenes will normally grow less than sales and cost of goods sold.
The growth rate is calculated on a monthly basis.
Depreciation
You cannot delete or edit deprecation expense. Depreciation Expense is estimated based on what was or will be entered on the Fixed Asset Purchases page.
Interest
You can delete or edit Interest expense. Interest Expense is derived from the loan amortization schedule. If you need to have another interest account you should add a new interest account and name it appropriately (i.e. Mortgage Interest or Other Interest).
Deleting Accounts
You delete any expense account other than interest and deprecation expense. Any amount that is left at $0.00 can be hidden so that it does not appear in your reports. You can choose to hide accounts with $0.00 amounts On the Reports - Formatting / Output page.
Editing Amounts
You can enter any amount you want. Normal expenses are entered as positive amounts.
You cannot edit interest expense. Interest Expense is derived from the loan amortization schedule. If you need have to another interest account you should add a new interest account and name it appropriately (i.e. Mortgage Interest or Other Interest).
You cannot edit deprecation expense. Depreciation Expense is estimated based on what was or will be entered on the Fixed Asset Purchases page.