Here is a very simple arts and crafts partial statement of Profit and Loss showing ordinary income, cost of goods sold and gross profit. I prepared the report for this fictitious company using QuickBooks. It contains the typical accounts you'll use for your arts and crafts business.
Arts and Crafts Ordinary Income
Ordinary Income includes all the money you've earned selling your arts and crafts products. Interest income on your arts and crafts business checking account or any other type of income you've made that's not related to selling your arts and crafts products is not considered ordinary income.
Arts and Crafts Sales Returns and Allowances
Sales returns and allowances reports if customers decide they made a mistake buying your product and return it for a refund. An allowance is when you give a customer a discount. Maybe you have a booth at an arts and craft show and you give a customer with a big order a 10% discount. Subtracting returns and allowances from ordinary income gives you total income.
Arts and Crafts Cost of Goods Sold
Cost of Goods Sold (COGS) reflects every direct expense you incur making your product. This includes the labor cost for your workers assembling the product, materials and supplies and miscellaneous other costs that directly relate to taking the product from start to finish. Total income less COGS = Gross Profit.
I want to note that most accountants call this an income statement. QuickBooks and other boxed accounting software might call it a Statement of Profit and Loss, Profit and Loss or P&L. All these terms represent the same basic facts: Revenue - Expenses = Net Income.
