A profit-and-loss or profit and loss statement helps inform you, the business owner, and your business’s stakeholders how healthy or underperforming your business is, which might require course correction or maintaining the current course towards profitability.

You can use accounting programs like Peachtree and QuickBooks to make it relatively easy to do things like produce a profit-and-loss statement for your company. They can specifically generate the statement for you. Just provide the pertinent info.

Profit-and-Loss Statement 101

If you wish to create a profit and loss statement for your business using an Excel spreadsheet or by hand, do the following. You’ll see it’s so easy an elementary student can calculate it.

  • Track Your Operating Revenue: Accurately and regularly record all payments received in regards to your sales of goods and services, including incoming revenue, for posterity. Don’t miss out on one sale and keep your books honest.
  • Record Cost of Sales: Cost of sales or goods sold refers to fluctuating expenditures, such as raw materials and inventory instead of fixed costs like leases and payroll. This can also include income tax.
  • Calculate Gross Profit: Get the total revenue for the month and subtract the cost of sales from it to calculate gross profit for the month. Add the months to get gross profits for the quarter and the year.
  • Determine Your Overhead: By overhead, we mean expenses like insurance, utility expenses, equipment rentals, advertising costs, lease payments, and  other fixed expenses (as opposed to cost of sales).
  • Sum Up Your Operating Income: As for your operating income, just get your gross profit (for the month, quarter, or year) from your overhead or fixed expenses. Yes, you need to calculate sales first before subtracting utility expenditures.
  • Consider Other Expenses and Income: Think about things like income not directly related to the offerings of your business, such as company investments paying dividends. As for expenses, this includes tax payments from pre-tax income, finance charges, or loan interest.
  • Get Your Net Profit: Calculate your net profit by taking account of everything above then subtract your other income and expenses from your operating income. No, your extra income shouldn’t be included in the net profit when gauging your business’s standalone stability.

Verdict

It’s easy to make profit-and-loss statements. It only involves basic arithmetic. The complexity of calculating it will depend on how many individual elements like operating revenue, cost of sales, overhead, and so forth are accurately recorded.

Some apps can even automate the entire process, while small business owners can calculate it from scratch using Excel or similar bookkeeping programs when in a pinch. It gives you amazing insight on company health and sustainability of your business.