Profit and loss, trial balance, VAT returns. A plain-English guide to the reports every business owner should understand.
The profit and loss statement
The profit and loss (P&L) statement, also called the income statement, shows your revenue, the costs of delivering that revenue, and what is left over as profit or loss for a given period. Revenue minus cost of goods sold gives you gross profit. Gross profit minus operating expenses gives you operating profit. This is the most important report for understanding how well your business is performing.
Understanding gross margin
Gross margin is gross profit expressed as a percentage of revenue. If you made N1,000,000 in revenue and your cost of goods sold was N400,000, your gross profit is N600,000 and your gross margin is 60%. A higher margin means more money available to cover overhead and generate profit. Tracking margin over time tells you whether your pricing and costs are moving in the right direction.
The trial balance
A trial balance lists all the accounts in your general ledger and their balances at a point in time. It is used primarily to verify that debits equal credits and that the books are balanced. While it is more of an accounting tool than a management tool, understanding it helps you verify that your financial records are accurate.
The balance sheet
A balance sheet shows what your business owns (assets), what it owes (liabilities), and the difference (equity). Assets include cash, accounts receivable, inventory, and equipment. Liabilities include loans, accounts payable, and taxes owed. The balance sheet is a snapshot in time. It tells you whether your business is financially healthy and whether it could survive a disruption.
VAT return reports
Your VAT return summarises all taxable sales and purchases for the period, the output VAT collected, the input VAT paid, and the net amount owed to FIRS. Kuvra generates this report automatically based on your recorded transactions. Review it before filing to ensure all income and expenses have been captured correctly.
Put this into practice with Kuvra
Everything covered in this guide is built into Kuvra. Try it free for 20 days.
Start Free Trial