Paul W. Carlson, CPA (00:00):
Hi, this is Paul Carlson, CPA with Law Firm Velocity. This video, we're running an income statement out of Soluno. So to run the income statement or profit and loss statement, they are synonyms, we go to Financials, Profit and Loss. We do P&L view, we set the dates that we're interested in seeing, and we hit the Play button. And so, from here, we have firm revenue for the month, we have expenses, and we have net income. A big caution on running income statements, understand where the income statement is in the financial close process, that current month, our real-time income statements can vary widely, based on if all transactions are posted or not. So in this example, we have an income statement, where we have a hundred thousand dollars of revenue, three grand of bills, no payroll, and we have net income of nearly all the revenue.
(00:56):
So from this, we can see that payroll has not been posted. And so, these numbers are wildly off. Now, when we work with firms that we close the books every month, and in that process, we go through the balance sheet and make sure it's perfect, and we go through the income statement to confirm the accuracy. And then, we will say the books are closed for that month. And if you run an income statement for that closed period, these numbers are reliable. If you are mid month and the books have not been closed, the numbers can vary wildly. So we'll see some firms will log in and they'll see things that are off, and the managing partner gets really frustrated, because it just doesn't make any sense. Because a lot of times, for cash basis firms, the numbers don't make any sense until the month is closed.
(01:43):
That payroll is so lumpy that the first week of the month has no payroll, that net income's going to be high, because there's no bills. Then the second week payroll posts, and there's no net income, because payroll absorbs all of the margin. So just understand what the report means, what status the income statement is in. Probably the best use of mid month or real-time income statements is, if the firm knows that collections are being posted in real time and they understand how revenue is picked up in the firm, that some contingency firms revenues picked up every day as cases come in.
(02:27):
And so, for those, income is fairly linear. For hourly firms, that do big trust draws on the third of the month, they will have a huge amount of revenue the first week of the month and very little revenue for the rest of the month, that understand that pattern. But then, you can run this income statement in real time, and you can understand how the firm is progressing towards monthly financial goals. And with that, a quick overview of how to run an income statement and a couple of cautions on interpreting the results. Thanks. Bye-bye.
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