How to Write a Profit and Loss Statement?
A profit and loss statement is a business report that shows the revenues and expenses and resulting profit or loss of a business over a specific time period. In some cases, this report is referred to as an income statement. These records provide insight as to whether a company can generate profit by increasing revenue, reducing costs or both.
So, how do you prepare a profit and loss statement? We have a free profit and loss template you can use as a guideline. Or, follow this simple step-by-step process.
For each row, you will have a quarterly amount then a total for the year.
Step 1: Each row will have a quarterly amount then an annual amount
Step 2: Show your business Net Income or Sales for each quarter of the year. If you wish, you can break down income into subsections to show different sources of income.
Step 3: Itemize your business expenses for each quarter. Each expense should be shown as a percentage of Sales. All expenses should be equal 100% of Sales.
Step 4: Show the difference between Sales and Expenses as Earnings. This is also referred to as EBITDA (earnings before interest, taxes, depreciation, amortization).
Step 5: Show the total interest on your business debt for the year and subtract from EBITDA.
Step 6: List (estimated) taxes on Net Income and subtract.
Step 7: Show the total depreciation and amortization for the year and subtract.
Result: This number should equal net earnings, or your business profit or loss.
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What Goes in a Profit and Loss Statement?
Most of the information you need to create a profit and loss statement comes from your cash flow statement or your first-year monthly budget, and from estimated calculations on your depreciation.
Specifically, you’ll need:
- A list of all the transactions in your business checking account and all the purchases made with business credit cards.
- Any petty cash transactions or other cash transactions for which you have receipts.
- A list of all sources of income – checks, credit card payments, etc. on your bank statement. Also, include cash paid to your business for you which you should have records.
- Notes about any reductions to sales, like discounts or returns.
If you’re using business accounting software to generate this statement, the profit and loss statement is likely included with the standard reports. Even so, you should still know what information is required to prepare this report.
Is a Profit and Loss Statement the Same as an Income Statement?
There is no difference between an income statement and a profit and loss statement. An income statement is often referred to as a profit and loss statement and vice versa. An income statement can also be known as a statement of income or statement of operations.
Both a profit and loss statement and income statement show you how much money your business earned and lost with a specific time period.