Along with the balance sheet, the results report is one of the most important reports in your business. Whereas the balance report gives an overview of your entire company and all the years, the results report gives an overview of one fiscal year. At the end of the fiscal year, you process the balance of your result in your balance sheet during the year-end closing. The new fiscal year begins with a new result, which again starts from zero.
The result is a statement of income and expenses for one fiscal year. It is divided to provide insight. Expenses on the left, income on the right. Each of those sides has two main categories as shown below. Each of those main categories can in turn have subcategories. The whole reason for all those categories is to make it clearer where it comes from or where it is going. In the end, they are all income or expenses.
|Expenses (debit)||Income (credit)|
|Cost of revenue (Kosten van de omzet)||Revenue (Omzet)|
Cost and cost of revenue?
As you may have already noticed cost appears twice in the results, this is as follows. When you sell furniture, you first buy wood. Then you use that wood to make the furniture. The cost of buying that wood is cost of revenue, that is, cost of making revenue. You spend it so you can earn something later.
But besides cost of sales, you can also have other costs, a kind of indirect expenses. These are sometimes called operational costs or overhead costs. An example is an internet subscription. These are costs your company incurs to be able to operate, but they are general expenses.
And uh, what is revenue again?
Revenue is income, but with one difference. It is income that you have not yet offset against expenses. In short, money that you've earned through sales, but whose purchase/production costs you haven't yet deducted. You really want to do the latter, because only then will you know what you've really earned. Let's take a look at an example, that' s easier:
So suppose you are a furniture maker: if you sell a chair for € 50.00 then you have € 50.00 revenue. But to sell that chair you had to make it first. For that you needed wood and of course time. Suppose the wood cost € 5.00 and your time € 15.00, then the cost of revenue was € 20.00. You therefore have a profit of € 30.00 after the sale.
Let's take this example one step further to make sure we have immediately covered everything. That € 30.00 profit is 'gross revenue'. Gross revenue is profit from which only the cost of revenue has been deducted. This excludes all the costs of your business, such as operational costs. Suppose you had € 8.00 of telephone costs that month, then after selling the chair, the net revenue that month is (30-8=) € 22.00.
We haven't discussed other yet?
Gosh, how embarrassing. Well, here goes. The 'Other' category in the results is a bit of a collection of other crazy thingies. You can think of 'payment differences' (betalingsverschillen), 'rounding differences' (afrondingsverschillen) and 'exchange rate differences' (koersverschillen). Those don't usually have very large amounts going in and out, but you have to keep track of it to keep your accounting records accurate to the penny. So it's a group of special cases. Each of those categories has its own help article available. We won't go further into that now; you can save that until later.
The essence of accounting
This background article is part of the series 'The essence of accounting'. It doesn't say anywhere that it is forbidden to read them all.