Link Profit & Loss to Balance Sheet in Magnifi | Account Linking

Linking the Profit and Loss to the Balance Sheet

Purpose

To explain how to link Profit & Loss accounts to Balance Sheet accounts in Magnifi so projections balance correctly and cashflow movements are recorded in the right place.


When to Use

  • When setting up your Chart of Accounts for the first time.

  • When projecting Profit & Loss items that impact the Balance Sheet (e.g., creditors, prepayments, loans).

  • When you want to ensure every active Profit & Loss account flows through to the correct Balance Sheet account.


How It Works

  • Under Chart of Accounts (Profit & Loss) there is a column called BS Account.

  • This is where you link each Profit & Loss account to a Balance Sheet account to ensure the Balance Sheet reconciles. 

  • If a Profit & Loss account is not linked, it will default to the bank account, however the cell will remain blank. 

  • Use Auto Map to quickly map your bank account, receivables, and payables. Magnifi will then auto-map many accounts using built-in logic.


Examples

Here are some common linking scenarios:

  • Sales → Accounts Receivable

    • Sales recorded against Accounts Receivable.

    • Receipts projected based on the customer Terms.

  • Purchases → Accounts Payable

    • Purchases recorded against Payables.

    • Payments projected based on the supplier Terms.

  • Bank Charges → Trading Account

    • Direct debit from bank (not via Accounts Payable).

  • Depreciation → Accumulated Depreciation

    • P&L category = “Depreciation”.

    • If you use Depreciation or Interest categories, Magnifi will report EBITDA.

    • If you prefer not to report EBITDA, map to Other Expense instead.

  • Interest – Loan → Loans Secured

    • Unless it's an interest-only loan which would be mapped to the Trading Account.  

    • Loan repayments are entered as sub-accounts under the relevant Balance Sheet liability account.

  • Annual Leave Provision → Provision for Leave

    • Reflects monthly journal posted to recognise the movement in the provision.

  • Superannuation → Superannuation Payable

    • Expense recorded against Super Payable.

    • Cash payment projected based on Payment Terms.

  • Wages → Trading Account

    • Although wages may post to Wages Payable, allocate directly to Trading Account for simplicity.

    • If they were allocated to Wages Payable, the wages would be deducted based on the payment terms.

  • Insurance (Prepayment) → Prepayments

    • Cost spread evenly across the year in the Profit and Loss. 

    • Cash payment projected as a sub-account in the Balance Sheet under the relevant account (eg Prepayments).

  • Income Tax Expense → Income Tax Payable

    • Expense linked to liability account.

    • Actual payments added as sub-accounts under the Balance Sheet account.


Tips/FAQs

  • Use Auto-map to link the majority of Profit & Loss accounts to key Balance Sheet accounts.

  • If accounts are not linked, projections will still reconcile but may distort cashflow (everything defaults to bank).

  • Use Prepayments for costs to be spread evenly in the Profit and Loss rather than expensed upfront.

  • Interest on Loans should link to the relevant liability account, not directly to bank (unless it's an interest only loan).

  • When in doubt, it’s safest to link to the bank account.