Field notes · No. 008

The Five Lines

Your profit and loss statement is not a record of your money. It is a record of your trading. The difference between the two has exactly five lines in it, and this page finds which one it was.

Why the statement cannot see it

A truck note of fourteen hundred dollars a month has maybe two hundred and fifty dollars of interest in it. Only the interest is an expense. The other eleven fifty is principal, and principal never appears on a profit and loss statement. Neither does the money you pay yourself. Neither does the cash you move aside for tax.

All three are real money leaving a real account, and none of them are expenses. So the statement can read healthy while the account falls, and no amount of hunting for waste will find the gap, because the money did not leave as waste.

This is not a bookkeeping failure and your accountant has not made a mistake. The statement is doing exactly what it was designed to do. It was simply never designed to answer the question you are actually asking, which is where the money went.

Run the page

One month. Twenty minutes. A legal pad is enough, and printing this one is fine.

Cash bridge · one month Month: ______________

Net profit for the monthStraight off the statement, before you argue with it.

Less: what you paid yourselfOwner draws and distributions. A draw is not an expense.

Less: loan and equipment principalThe payment minus the interest. Vehicles, equipment, anything financed.

Less: cash moved for taxAnything you transferred aside and have not spent.

Less: work finished and not yet paidIncluding the jobs that were never invoiced. Usually the biggest line on the page.

Equals: what the bank account did

The page checks itself. Compare that last figure to your opening and closing bank balance for the same month. If it ties, you have found where the money went. If it does not tie, a line is missing, and the size of the miss tells you how big the missing line is. No single number can do that, which is the whole reason this is five lines and not one.

Fig. 01The same month drawn. Where it starts, where it lands, and the five lines that are the entire difference between the two. Illustrative figures, taken from the worked example below.

Illustrative example

A nine truck shop. Revenue up. Profit on the statement, nine thousand four hundred dollars. The bank account ended three thousand one hundred dollars lower than it started. Twelve thousand five hundred dollars between the statement and the account.

Six thousand of draws. Two thousand three hundred of principal. Two thousand four hundred moved for tax. Eighteen hundred of finished work sitting unpaid, and more than half of that had never been invoiced at all. Not late. Not disputed. Never sent.

Nine thousand four hundred, minus all five, equals minus three thousand one hundred. Exactly what the account did.

Run it for three months before you conclude anything. One month on its own is often just a payment that cleared on the wrong day. Three in a row shows you the friction.

A law office runs the same page. So does a clinic, a salon and a landscaping crew. The nouns change and the arithmetic does not.

If the missing line is the last one

In most businesses that run this page, the biggest miss is work finished and never invoiced. Not disputed, not chased, not written off. Simply never sent, because the person who would have sent it was answering the phone.

That line is the one an installed seat is for. Work finished, work invoiced, money landed: three lists, compared every morning, with the exceptions surfaced on one page before you get there. What we install explains the rest of it.

If it does not tie

Find the friction. Then remove it.

Bring the month that will not tie and we will find the missing line together, on a call. You keep the page and the answer whether or not anything else ever happens.

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