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Hello, my name is Emily Gasner. I'm with Working Solutions, and I'm going to be talking about
how to read a profit and loss statement. A profit and loss statement has a few very important
parts to it. At first, at the very top of a profit and loss statement, you're going
to see sales. So those are everything you've sold, and what you sold them for. After that,
you're going to see a section called cost of goods sold, or COGS. And that is all of
your direct costs associated with selling each item. So, for example, if you sold a
pair of earrings that you made for twenty dollars, but it cost you ten dollars to make
them, your sales are twenty dollars, and your cost of goods sold is ten dollars. Your gross
profit is the next line that you'll see on them profit and loss statement. And the gross
profit is your sales minus your cost of goods sold. So in the case of the earrings, you
will have sold twenty dollars, with the cost of goods of ten dollars, and then your gross
profit is ten dollars. That's actually your profit margin, which would be fifty percent,
because it's that gross profit amount divided by your sales. The next section below that
is going to lay out all of your indirect costs. So these are all the things, your expenses
associated with, for example, if you have salaries of employees that you pay, if you
pay for marketing, if you pay rent for a location that you have. All of those things, your overhead
are all included in those numbers in your expenses. You total up your expenses underneath
that section, and then below that you will see your expenses minus your gross profit.
And that is your net income. And that is whether you're making a profit or not. And that's
how you read the profit and loss statement.