Report Reviews for Taxation Purposes
About this time of year many of us decide to look at our Profit & Loss report to see how we went for the last financial year and get an idea of what our tax position is likely to be, once our tax returns are lodged. Some people will look at this report a couple of months prior to the end of the financial year and decide whether they might need to be consulting their financial advisor or accountant about options to minimise their future tax liabilities.
Regular Management Reporting
Regular reporting combined with up to date bookkeeping can help us to be more pro active in managing our businesses and not just reactive, potentially giving us better returns on our business investments.
The Difference between the P&L and the I&E
The Profit & Loss and Income & Expenditure reports in Phoenix are just two of the reports which help us to know and manage our businesses, but in this article we will focus on the differences between these reports along with some of the ways we can optimise them.
Commonly, support calls about reports in Phoenix are because clients are comparing the two reports, particularly if they have Livestock Accounts and cannot understand why the livestock sales and purchases are in the Income & Expenditure report, but not in the Profit & Loss report. The two reports are not the same, and so the filtering options for them are different.
Look at the Account lists in your set of books. If you select all for the Accounts for both reports you may not get the same results. If, in your set of books you don’t have Physical (Livestock and Commodity) accounts then the Accounts available to report on will be the same, and if you select the same options in both reports you will see Livestock or Commodity sales and purchases in both reports.
If however you do use the Livestock Accounts in Financials and keep them up to date, your reporting options for the Profit and Loss report have now expanded to a report to not just show sales and purchases, but to also have a calculated profit or loss on your Livestock enterprise on a Management or Taxation basis. The calculated profit or loss is not a straight difference between sales and purchases, but it includes the other movements which can occur and be recorded in our Livestock Accounts. The management option helps with understanding how the profitability or otherwise of our livestock enterprise contributes to our business and the taxation option helps us predict what our tax position will be. Commodity Accounts don’t have a taxation basis but they also can have a calculated profit.
What is the purpose of these reports?
The purpose of the Profit & Loss report in Phoenix is to determine the profitability of the whole, or part of the business being reported on. This is opposed to the profit figure on which the business will be taxed. There are many adjustments to be made by our accountant to arrive at the reportable taxation amounts. The Income & Expenditure report shows total income and total expenditure and calculates the excess income or expenditure.
One of the other filters in Phoenix reports which varies between the Income & Expenditure and Profit & Loss Reports is the Groups. Groups have different uses, but one important one is as an additional way to filter our reports to include just the information we need. What we need depends on the purpose of the report.
If you use Groups and have your Categories allocated to Groups, generally for a Profit & Loss report you do not want to include Capital transactions or transactions which are not part of our operating income and expenses. Nor do we want to include transfers between different accounts. For an Income & Expenditure report we can choose these Groups but for a Profit & Loss report, the pre-set Groups of Non-operating, Capital & Development, Equity and Fund Transfers are not even listed for the Group filter.
An important similarity between the two reports and what makes them a powerful tool when analysing our business, is the option to order our reports by Enterprise. Enterprises allow us to allocate the income and expense transactions as we record them, to specific parts of our business. Using Enterprises, when we choose our report options we can just report on a single part of the business or we can report on the whole business but with the added option of showing all the income and expenses across the different Enterprises.
We cannot tell you how to interpret the reports in your business, but if you don’t think you are getting as much information about your business as you would like, it may just be that some ‘tweaking’ is required in your setup. You need to know what you want to achieve first though.