# Profit and Loss Statement

A

#### Alex Parker, MBA Accountant

I'm a first time user of the Microsoft community discussion forum and I
currently use MOA 08. Here's Fabrikam profit and loss statement for the 1st,
2nd, 3rd quarters for 2007 using the cash method of accounting.

Total Income \$159,075
Total COGS \$123,404
Gross Profit \$29,218
Total Exp \$93,326
Net Income \$(64,280)

2nd Quarter

Total Income \$385,146
Total COGS \$277,669
Gross Profit \$89,943
Total Exp \$92,787
Net Income \$(3,400)

3rd Quarter

Total Income \$428,428
Total COGS \$365,330
Gross Profit \$85,295
Total Exp \$90,708
Net Income \$(5,882)

That's \$73,562 in losses for Fabrikam Inc. for the first 3 quarters.
Of course these figures are not based on accural method.

Accountant

C

W

#### William Stacey [C# MVP]

Is there a question?

A

#### Alex Parker, MBA Accountant

Yes, there is a big difference. The cash method vs. accrual method. Here's
the accrual method finding. For Fabrikam Inc. 1st, and 2nd Quarter of 2007

Total Income \$288,825
Total COGS \$194,935
Gross Profit \$93,889
Total Exp \$95,636
Net Income \$(2,012)

2nd Quarter

Total Income \$480,038
Total COGS \$334,517
Gross Profit \$145,520
Total Exp \$93,175
Net Income \$51,806

The cash method Fabrikam reports a loss of \$73,562 for the first 3 quarters.
When actually in the first quarter using the accrual method Fabrikam reports
a small loss of \$2,012. The 2nd quarter you have net income of \$51,806. So, I
suggest that using the correct accounting method is a very important concept
to learn.

M

#### Macy

Fabrikam began business in the first quarter and spent lots of money
on MS software. It had billings that were not collected in the first
quarter. On the cash basis the money spent vs. the money collected
creates the large loss.

The better question about the Fabrikam I have, what is in long term
liabilities.

Macy

A

#### Alex Parker, MBA Accountant

Hi Chris,
I hope the two illustrations were sufficient however, the accrual basis
reports all the accounting activity in the period it occurs regardless of the
when the cash have been paid or received. The cash basis method recognizes
revenue when they are received and expenses when they are paid.

A

#### Alex Parker, MBA Accountant

Hi Macy,

Lets take a look at Fabrikam books to find that answer? It looks like
Fabrikam have a couple of long-term liabilities. A long-term note, and a
payroll liability.

Alex

C

#### Chris Schatte

Alex,
Been thru Fabrikam many numerous times so...
Still don't understand your post other than there should be:
Sample Companies
Fabrikam accrual basis
Fabrikam cash basis
This is a major flaw/overlook by Microsoft on how to setup companies in OA
08, OA 07+ or SBA 06++ for the average user...
How is the average user out of their home (selling on ebay) or even if they
have a store front (using Office Live) supposed to use the sample companies
to setup their business using the samples provided??? In my humble opinion
this area of OA needs a lot more work and support...

On another note, by chance have you found a decent way to post inventory
shrinkage?

Chris Schatte
--
SBA 06>OA 07 08:
Office Live site:
www.texomagardens.com
My spaces blog:
http://ms-sba-user.spaces.live.com/

W

#### William Stacey [C# MVP]

Not sure I understand this thread. accrual-vs-cash is handled at the report
level. Why would we need seperate company files?

C

#### Chris Schatte

Cash and accrual are set in Company preferences are they not? 2 standards of
accounting methods. In my humble opinion, since OA supports the2 there should
be sample companies to supply the end user with an example of the 2 methods
with supporting help files.
So how would a stay at home Mom that wants to sell on ebay setup her company
vs a business that has an established store front with a web site using ebay
with account customers setup their respective companies using the provided OA
samples?

Chris Schatte
--
SBA 06>OA 07 08:
Office Live site:
www.texomagardens.com
My spaces blog:
http://ms-sba-user.spaces.live.com/

C

#### Chris Schatte

Cash and accrual are set in Company preferences are they not? 2 standards of
accounting methods. In my humble opinion, since OA supports the2 there should
be sample companies to supply the end user with an example of the 2 methods
with supporting help files.
So how would a stay at home Mom that wants to sell on ebay setup her company
vs a business that has an established store front with a web site using ebay
with account customers setup their respective companies using the provided OA
samples?

Chris Schatte
--
SBA 06>OA 07 08:
Office Live site:
www.texomagardens.com
My spaces blog:
http://ms-sba-user.spaces.live.com/

W

#### William Stacey [C# MVP]

That is only a simple "switch" that sets the default preference for the
report (i.e. P&L) - that is all it does. You will notice in the reports,
you have the option to change the "Report Basis" with a dropdown in the
upper left.

You can think of this as just different "views" of the same data. The
accounts don't need to change or be different so having different companies
samples is not needed and would be redundant. You can actually report in
either style on your own company just by selecting the other style if you
have some reason to do that or are just curious. Note, some reports are not
effected by Basis so the option is not available (i.e. chart of accounts,
item list, etc.) hth
--wjs

A

#### Alex Parker, MBA Accountant

Inventory shrinkage I think you're referring to decreases in inventory? This
requires an adjustment to your inventory. When you sell an item in inventory
it requires an accounting adjustment. I believe we're talking about the same
thing "shrinkage".

Alex

A

#### Alex Parker, MBA Accountant

Hi Chris,

This isn't an easy answer and because the playing field for home users is so
broad it makes it more difficult. However, the end user has similarities they
have made the purchase of OA 08. Now, the business store front owner may have
some business background and training from his/her job. The stay at home mom
that wants to improve her business through a website has numerous options.
Take some time at the resource training center provided by MS OA 08 and or
use the find an accountant to do the books through the accounting wizard.
However, this option comes with an expense and the level of his/her resources
and training will vary greatly.

Alex

M

#### Macy

Alex, I don't know if everybody's Fabrikam is the same. On mine, Long
Term Liabilities includes a large payroll tax number on the balance
sheet. The number is too large for the activity of Fabrikam and it
would be unusual to have long term payroll tax liabilities. Drilling
to the detail it appears to be a loan, not payroll taxes. My point was
that there was a very obvious error that was included in the example.
Including obvious errors is consistent with the sample companies
included with the software since SBA.
Macy

M

#### Macy

Chris, It does not matter what you set in prefrences, the data base
functions on the accrual basis. Cash basis reports convert the data to
reflect cash basis. All things considered, MOA does a pretty good job
of converting. If you have inventory, converting can create strange
results. Many small businesses want to track who owes them and who
they owe (accrual) but report for tax purposes on the cash basis.
Macy

A

#### Alex Parker, MBA Accountant

Macy, Fabrikamâ€™s financials does indicate three long-term liabilities; notes
payable and two payroll tax, one payroll tax, and one other payroll tax. As
an accountant I see what Fabrikam did they made a sizable acquisition to
continue there operations in construction. The capital asset and
amortization effect is spread out to make the payments affordable. Now the
principal and interest payments are categorized under payroll. Do you see the
reasoning or irony here?

Alex

A

#### Alex Parker, MBA Accountant

Macy, Fabrikamâ€™s financials does indicate three long-term liabilities; notes
payable and two payroll tax, one payroll tax, and one other payroll tax. As
an accountant I see what Fabrikamâ€™s did they made a sizable acquisition to
continue their operations in construction. The capital asset and
amortization effect is spread out to make the payments affordable. Now the
principal and interest payments are categorized under payroll. Do you see the
reasoning or irony here? If this is a duplicate sorry.

Alex

M

#### Macy

Alex, No, I do not see any reasoning or irony in Fabrikam. In fact the
more I look at Fabrikam's transactions, the more errors and
mis-posting I find. It is a poor example for new users. It would make
a good tool to teach accounts how to annalize and correct a set of
books.

Macy

A

#### Alex Parker, MBA Accountant

Macy, I agree. Iâ€™m sure an acquisition of heavy equipment placed under
payroll is questionable? It leaves Fabrikam open to debate however the follow
up question is who does Fabrikam books?

Alex