The income statement summarizes the income and expenses and presents the profit or loss figure for a business in a certain time period. These periods are monthly, quarterly, or annually. After understanding the accounting methods that are appropriate for your business, then it will be very easy to see the income statement and the accuracy of the numbers. Additionally, if you also want to improve the accuracy of your bookkeeping data, we highly recommend you hire a professional Gold Coast Xero Bookkeeper.
Here are some important things that can be identified if the data in your profit and loss statement is incorrect:
Large Profits With Small Cash Flow
One way to get an accurate picture is to look at the income statement together with the cash flow statement to make sure the profit you get is accompanied by cash coming in. Large profits are recorded in the income statement, but on the other hand, it turns out that the incoming cash flow is small. This gives a warning that there are problems in receiving money.
Operating Gross Profit Declines
The health of a company is largely determined by its ability to generate operating gross profit. Operating profit will ensure positive operating cash flow to pay all production costs, sales costs, general and administrative costs, tax costs, and interest costs. A decrease in operating gross profit can cause operational cash flow to be minus. Furthermore, to meet all costs, the company must borrow funds from outside or sell assets. Of course, this choice is not good because it will certainly erode profits and disrupt the wheels of production and operational activities of the company.
Unpredictable Profit Percentage
Gross profit is generated by subtracting revenue from the cost of production. The percentage of gross profit naturally only moves up and down within the range of 3-4%. If you see movement outside the percentage range, then this indicates an abnormality. The entire sales process, purchasing process, inventory handling, production costs must be dissected to find the problem.