HOW TO CREATE A PROFIT & LOSS STATEMENT FOR YOUR BUSINESS
- A P&L statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time - usually a fiscal quarter or year.
- These records provide information that shows the ability of a company to generate profit by increasing revenues and reducing costs. The P&L statement is also known as a "statement of profit and loss", an "income
statement" or an "income and expense statement".
#1 Gather data on revenues
- Gather records of all revenue. This will take a couple of different forms depending on the nature of business. It may be receipts on services provided, products that were sold, or the membership fees that were collected.
The goal here is to document all proceeds.
- Don't worry about calculating taxes at this point.
#2 Subtract discounts and returns to get net sales
- Determine allowances and returns. When goods and services are sold at a discounted price, an allowance is made for the difference between the regular price and the sales price.
- Revenue - discounts and returns = Net Sales - COGS = Gross Profit.
- This allowance should be recorded for the month so that organizations can track the effectiveness of sales.
#3 Less cost of goods sold to get gross income (includes the cost of inventory + direct shipping costs to receive the inventory)
- Include cost of goods. In order to sell a product and gain revenue from it, a purchase of raw material or other direct items is necessary to produce your final product. COGS must be documented in order to determine
- A grocery store, for example, will buy products from various wholesale vendors and then sell those same items to their own customers. The cost of these goods depends on quantities purchased, shipping costs, and
- It is clear that "COGS" is important and should be tightly controlled.
#4 Calculate expenses
- Any money spent for the purchase of operating the business would be expenses. This would include payroll, cleaning, office supplies, and any number of other possible expenses.
#5 Get net income before taxes
- Take the gross profit and subtract the expenses to get net income before taxes.
#6 Get net income after taxes
- Once all the taxes are determined subtract taxes from net income before taxes. This will give the final net income amount.
- Place these items in spreadsheet format and delineate debits from credits.
- Hopefully, there will not be a net loss.
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