the freshBooks profit & loss report
Whilst the Profit and Loss report in FreshBooks business invoicing software can help you see if your money is in the black i.e. bringing enough income in to cover all the expenses you pay for out of the bank and leave you with a profit, there will sometimes be expenses that should not be on a P&L but should be on a Balance Sheet.
Here are some examples:
- personal expenses paid for with business money
- asset purchases (but you can claim depreciation on assets)
- loan repayments
- tax payments
why is this important?
The above-mentioned expenses are not tax deductible.
Tax is calculated on the final profit, which is calculated within the P&L.
Leaving these expenses on the P&L decreases your profit meaning you pay less tax, but if it is ever found out that you have included non-deductible expenses you will suffer penalties by the government.
Moving these expenses to the Balance Sheet avoids this problem.
So, take care when filing your tax return not to include these non-deductible expenses.
Use a professional bookkeeper or accountant to help you get this right for tax time so you can relax and get on with what you need to do.
If you do not use a bookkeeper or accountant, I highly recommend getting other software that enables you to track deductible and non-deductible expenses in the appropriate reports on a monthly basis, and use the P&L from that other software for filing taxes at the end of the year.
You can even use an Excel spreadsheet like our Accounting Excel Template.
bank reconciliations and freshbooks
As I mentioned earlier, you do not have access to the cashbook in FreshBooks business invoicing software.
You can either keep a cashbook yourself using other software which enables you to process a bank reconciliation (even a spreadsheet or cash book that you write in), or pay a professional bookkeeper to do it.
This is important because un-matching balances mean that income or expense transactions are missing.
This affects the P&L in a negative way.
Even though FreshBooks automatically imports the expenses from your bank account, all software can experience glitches and there may be times when a transaction has not imported.
A monthly bank reconciliation will uncover missing income or expenses.
why is a bank reconciliation important?
Wouldn’t it be awful if several months down the track you discover a missing billable expense transaction and now it’s too late to charge the customer and you’ve lost out on income?
Or what about income that has not been included on the P&L and is not declared on your tax return thus meaning you pay less tax; you will pay penalties by the government for not declaring income and paying tax on it.
conclusion on using freshBooks business invoicing software
With FreshBooks you won't spent abundant time learning accounting just to bill your clients or keep your eye on expenses.
And you won't be stuck using Work or Excel to produce and track invoices.
As an experienced bookkeeper I had to re-think everything I am familiar with to be able to work within FreshBooks because of how different it is to the standard bookkeeping software programs available. I had to think like someone who has no experience with double-entry bookkeeping when using FreshBooks because it is a single entry program.
Once I truly understood FreshBooks’ main goal I was much less frustrated.
Their main goal is providing easy accounting software for billing clients and tracking expenses.
This is good news if you are a non-accountant, small business owner because you can skip the complicated accounting.
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