What a Profit and Loss Statement Shows
The profit and loss statement summarizes income and expenses over a period, such as a month or year. It helps you ask which services generated income, what it cost to operate, and whether the business reported a profit or loss for that period.
The accounting basis matters. Revenue and expense timing may differ between cash and accrual records, so compare reports prepared on a consistent basis.
What a Balance Sheet Shows
The balance sheet reports assets, liabilities, and equity at a particular date. Assets include resources such as cash and, where applicable, customer receivables. Liabilities include obligations such as loans and unpaid bills. Equity reflects the remaining interest after liabilities.
A Simple Illustration
Assume a service business reports $6,000 of income and $3,500 of expenses for a period. Its profit and loss statement shows a $2,500 profit.
At period end, assume it has $4,000 of cash and $2,000 of receivables, for $6,000 of assets. With $1,500 of liabilities, equity is $4,500. The balance sheet balances: $6,000 of assets equals $1,500 of liabilities plus $4,500 of equity. These are hypothetical figures, not Lighthouse client results.
Why Profit and Cash Can Differ
An invoice may affect an accrual-basis profit report before the customer pays. A loan can increase cash while creating a liability. An owner withdrawal can reduce cash without being an ordinary business operating expense.
Those differences are why the bank balance cannot answer every question about performance.
Questions to Ask Each Month
What changed in income or expenses? Are customer balances growing? Did debt or owner activity change? Are the accounts reconciled? Are any records missing? Compare periods consistently and investigate unusual movements rather than reading the totals alone.
Start With Dependable Records
Reports are only as useful as the information behind them. Lighthouse helps organize bookkeeping records, reconcile included accounts, and prepare the financial reports agreed in your plan. Explore reporting support or monthly bookkeeping if you need a more consistent routine.
