Chapter 6.2

The Profit and Loss and the Income Statement

How to read the statement that says whether the business made money: its sections from revenue to net income, the trend and working-paper views, and how to correct the way accounts are presented on it.

Level Beginner to intermediate Time about 15 minutes to read You need Chapter 6.1 Edition November 2026 (revised 6 November 2026)

Learning objectives

When you finish this chapter you will be able to:

Read the Profit and Loss from top to bottom and say what each subtotal means.
Work out gross margin and operating margin from it.
Use the trend and working-paper views.
Fix an account that is presented in the wrong section.
Choose between the Profit and Loss and the Income Statement.

1Reading it from the top
AProcedure A: fix how accounts are presented
2Trend and working paper
3Profit and Loss or Income Statement?
4Check your understanding

SECTION 1

Reading it from the top

Line	What it means	Summit, Jan–Oct 2026
Gross revenue	Everything invoiced or sold	1,813,529.78
Less returns, allowances, discounts	Money given back	(38,434.70)
Net revenue	What the business really earned from sales	1,775,095.08
Cost of sales	The cost of the goods and contracted services sold	(1,052,216.73)
Gross profit	What is left to run the business	722,878.35 (40.7%)
Operating expenses	Wages, rent, utilities, marketing and so on	(615,790.25)
Operating income	Profit from the business itself	107,088.10 (6.0%)
Other income (expense)	Interest earned and paid	(1,597.47)
Income tax expense	Federal and state income taxes	(30,018.03)
Net income	The bottom line	75,472.60 (4.3%)

Pro tip: watch the margins, not the totals

Revenue grows and falls with the season; margins tell you whether the business is healthy. Run the report with Percentages: Of net revenue (Chapter 6.1) and compare gross margin and operating margin quarter to quarter.

PROCEDURE A

Fix how accounts are presented

BizBooks360 checks the statement's classification each time it runs. Summit's income tax accounts sat under Operating Expenses, which understated operating income by $30,018.03, so the statement was marked Draft with a note explaining why.

Before: Income Tax Expense with Federal and State Income Tax sits inside operating expenses; total operating expenses 645,808.28; operating income (a) 77,070.07; net income 75,472.60; note (a) says operating income would be 107,088.10 if they were presented as income tax expense — **Figure 1.** Before. 1 income taxes inside operating expenses. 2 operating income, marked (a). 3 the note: "Operating income would be 107,088.10 if they were presented as income tax expense."

1

Read the yellow review notice at the top of the report
2

Click the button it offers

Here Present them as income tax expense. For any other change, Change statement lines lets you choose which section each account appears in.
3

Check the result

A banner confirms the change and says it is listed in the report information; the Draft mark is gone.

The confirmation banner after the fix, where the yellow Draft notice used to be: Federal Income Tax and State Income Tax are now presented in income tax expense. The change is listed in the report information. — **Figure 2.** The confirmation.

After: total operating expenses 615,790.25, operating income 107,088.10, other income and expense, income before income taxes 105,490.63, an Income tax expense section with Federal 22,460.27 and State 7,557.76, total 30,018.03, net income 75,472.60 — **Figure 3.** After. 1 operating income now 107,088.10. 2 income before income taxes. 3 income tax expense in its own section. 4 net income unchanged.

Presentation, not entries

Net income did not change: no entry was touched, only where two accounts appear. That is why such fixes are safe to make at any time, even after a period is closed.

SECTION 2

Trend and working paper

Trend. Change report → Columns: Trend, then by week, month, quarter or year. A quarterly trend shows Summit's busy third quarter: gross profit of $287,189.37 against $210,920.29 in the first.

Profit and Loss by Quarter for 2026: Q1, Q2, Q3 and October 1 to November 6 side by side with a total, first-level groups, with Galveston Building and Riverside Fourplex shown as their own revenue groups — **Figure 4.** Profit and Loss by Quarter. The last column is the quarter in progress, October 1 to today. Galveston Building and Riverside Fourplex, the rental properties kept in these books, show as their own revenue groups.

Working paper. Click Working paper beside Statement for the accountant's view: each account's number, and how many documents make up each figure.

Working paper view: the same statement with account numbers beside each line and a Docs column counting the documents behind each figure — **Figure 5.** The working paper. 1 the view. 2 the Docs column.

SECTION 3

Profit and Loss or Income Statement?

Both show income and expenses for a period. The Profit and Loss is the full presentation, with comparisons, trends and percentages. The Income Statement (Reports → Income Statement) is a simpler listing, also offered as Month and year to date side by side, which many owners prefer for a monthly review.

SECTION 4

Check your understanding

1. Gross profit $722,878.35, net revenue $1,775,095.08. What is the gross margin?

Answer

About 40.7% (722,878.35 ÷ 1,775,095.08).

2. Moving the income tax accounts changed operating income. Did it change net income?

Answer

No. Presentation changes where accounts appear, not their balances.

3. Which view shows account numbers beside each line?

Answer

Working paper.

The Profit and Loss and the Income Statement

Contents

Reading it from the top

Fix how accounts are presented

Read the yellow review notice at the top of the report

Click the button it offers

Check the result

Trend and working paper

Profit and Loss or Income Statement?

Check your understanding

Volume 6: Reports