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How the Profit & Loss is forecast
In Fathom, there are three main types of Profit & Loss accounts, and each account type is forecast differently. The type of account depends on its classification.
P&L Account Type | Account Classification(s) |
Revenue, Variable Cost of Sales, Fixed Cost of Sales, Variable Expenses, Fixed Expenses, Other Income, Other Expenses | |
Interest Income, Interest Expense, Depreciation & Amortisation, Adjustments, Dividends | |
Tax Expenses |
📝 Note: An account’s classification can be changed in the Chart of Accounts section of the Company Settings.
Regular P&L accounts
Regular P&L accounts are forecast according to value rules. Value rules are calculations of your choice or direct entries on the Profit & Loss.
Regular Profit & Loss accounts are forecast on the Profit & Loss, and their amounts can impact various Balance Sheet accounts.
Example: With a value rule, you forecast $350 in an Expense to be paid out of a Cash account on the Balance Sheet. You need the Profit & Loss value to determine how much to reduce the Cash account on the Balance Sheet.
Balance Sheet-derived P&L accounts
Unlike Regular P&L accounts, Balance Sheet-derived Profit & Loss accounts are forecast according to schedules & journals.
These accounts are treated differently from Regular P&L accounts because movements on the Balance Sheet primarily determine their amounts. In other words, the Profit & Loss values are based on the Balance Sheet values.
Balance Sheet-derived P&L accounts are often automatically calculated based on configurations you’ve made on debt or asset accounts on the Balance Sheet.
Examples:
Interest Expense values on the Profit & Loss are determined by a loan amount and repayment schedule on the Balance Sheet.
Depreciation expenses depend on asset amounts and value changes on the Balance Sheet.
Tax Expense accounts
Tax Expense accounts are forecast according to the tax settings.
Some examples of line items you can forecast with tax expense accounts include:
Corporate Income Tax
Employer’s payroll match contributions
Employer’s pension contributions
Your Tax Settings will automatically calculate the tax expense amounts on your Profit & Loss and other tax movements.
Forecast the P&L Workflow
We suggest the following workflow for forecasting the Profit & Loss:
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Why do we suggest this workflow?
We recommend configuring your Tax Settings first, so that your tax amounts are automatically calculated as you forecast; however, you can choose to return to this step later on.
Example: If you set up a 'Corporate Income Tax' expense as 30% of your Net Income, the Tax Expense will be automatically calculated as you forecast your remaining Profit & Loss values.
We suggest waiting to set up schedules & journals on your Profit & Loss statement, as many of them will depend on forecasting Balance Sheet movements.
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