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How to Create a Profit & Loss Statement for Your Business

April 27, 2023
How to Create a Profit & Loss Statement for Your Business

Every business needs to keep track of its finances, and one of the most important documents to do this is the Profit & Loss Statement (P&L). It details how much your company has made over a given period by displaying revenue and expense items. It can help assess overall business performance, determine areas where costs can be reduced, and make strategic decisions about your company's future. If you're wondering how to create a P&L statement for your business, we'll walk you through the steps!

 

Track Your Revenue and Expense Items Efficiently and Accurately

Keeping track of your revenue and expenses allows you to create an accurate P&L statement, giving you a clear picture of your financial health. There are a few different ways to do this. One option is to open a business bank account, which will give you a well-defined record of all your income and expenses.

Another option is to track everything in Excel. While this can be a bit more time-consuming, it is convenient if you're already familiar with the program.

QuickBooks is another great option for businesses. This widely used software is very user-friendly and can save you a lot of time in the long run by easily tracking all financial activity. Whichever method you choose, ensure you're tracking your revenue and expenses correctly and timely so that your P&L statement will be as accurate as possible.

 

Creating your P&L

  1. Start with your gross sales.
  2. Subtract returns and allowances to get your net sales.
  3. Subtract your Cost of Goods Sold (COGS) from your net sales to calculate your gross profit.
    1. To calculate COGS, you'll need to factor in your beginning-of-the-year inventory, purchases made during the year, and end-of-the-year inventory.
  4. Subtract all expenses from your net sales to determine total operating income.

 

Why separate COGS and operating expenses?

When constructing a P&L statement, businesses will typically separate their Cost of Goods Sold (COGS) from their operating expenses. COGS includes all the expenses related to the production of a product, such as the cost of materials and labor. On the other hand, operating expenses are not directly tied to the production of a product. They include items such as utilities, office supplies, and administrative costs. By building their P&L in this format, businesses can gain valuable insights into where they can cut costs and make their operations more efficient.

 

How to Build a P&L

Now that you know how to calculate your total operating income, how do you go about reporting it? There are several ways to create your profit and loss statement:

Excel

Excel is a budget-friendly option if you don't have the resources to invest in QuickBooks. Excel is widely available and provides templates that can help you track your income and expenses. To start, open Excel and click on the "File" menu. Then select "New" and choose the template that best suits your needs.

Once you've found the right template, take some time to input your data. Be sure to include both your income and expenses, as well as any other relevant information like employee salaries or product costs. Once you have all your information entered, you can begin generating reports. These reports will show you how much profit or loss your business makes each month.

QuickBooks

If you are already a QuickBooks user, the software makes creating an accurate and up-to-date P&L easy. If you have never used QuickBooks before, read about training tips here!

First, log into QuickBooks and navigate to the "Reports" section. From there, click "Profit & Loss" and select a period for your report. Once you've done that, click "Run Report," and the software will generate your P&L.

QuickBooks will automatically break down your revenue and expenses into different categories, making it easy to see where your business is making and losing money. You can also use the filters on the left-hand side of the screen to further customize your report.

 

Bottom Line

A P&L is crucial for any business. It shows how much revenue your company has generated over a certain period and breaks down your various expense categories. If you need help getting started, feel free to contact us.

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