Interest, Taxes, Other Gains and Losses, and Net Profit2:21 with Michael Watson
Introducing the Interest, Taxes, Other Gains and Losses, and Net Profit line items and how to know if a business is profitable.
Links to further reading on tax versus accrual accounting
All right, we are almost done with the profit and loss statement. 0:00 But we have a few more line items to cover. 0:04 Interest in taxes are exactly what they sound like. 0:07 Interest is an expense of business has for the interest payments they make for 0:11 any debit facilities they have. 0:15 Taxes are the expense for any taxes the business has to pay. 0:17 Tax is a massive topic in accounting, and there's a ton of complexity to it, 0:22 because of the different tax laws around the world. 0:26 Furthermore, tax accounting rules are sometimes different than 0:30 book accounting rules. 0:34 So, it's just a complicated topic we don't have time to cover in this course. 0:35 In the teacher's notes, there are some links to articles about this, 0:40 if you are inclined to explore it further. 0:43 Other gains and losses are expenses that don't fit into the categories above. 0:47 Sometimes, these are charges related to a restructuring, or for 0:52 winding down a business that you are no longer going to be operating. 0:57 Maybe it's a write-off charge. 1:01 But after all the COGS, SG&A, depreciation and amortization, interest, taxes, and 1:03 other gains or losses are accounted for, we arrive at the net profit line. 1:10 Or sometimes is called net income. 1:15 This is the profit profit. 1:19 If a company is profitable, you will see a net profit and a positive number here. 1:21 If the company is not profitable, then it is a net loss, and 1:27 you will see a negative number here. 1:30 This line item is the bottom line, literally, figuratively, 1:33 whatever you want to say. 1:37 So, when people refer to the bottom line in finance and 1:39 accounting, this is typically what they say. 1:42 We also see here another example of the difference between gross and net. 1:46 Gross profit is a profit metric after COGS have been accounted for. 1:51 But there's lots of other costs before we get to net profit. 1:56 You use these metrics to understand different things. 2:00 But don't make the mistake saying, hey, we made a gross profit this quarter so 2:03 we're profitable. 2:08 That's wrong. 2:09 Okay, pretty cool how much information there is on the PNL, right? 2:11 We're going to move on to a quiz now and 2:15 in the next stage of this course, we'll introduce the balance sheet 2:17
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