How To Make a Profit and Loss Statement

Profit analysis graph

Your income statement is also known as a profit and loss statement; this helps clarify if your business is suffering a loss or operating on the plus side. If you have all your paperwork in place, preparing one of these statements gets easier. To know more, please read through the article below.

  1. Start with filing your proof of income and expenses into a folder; this only makes it easier to prepare your profit and loss statement. On a white sheet of paper, jot down the heading to prepare this statement. For example, write “INCOME STATEMENT” on the top middle and mention the date (year or quarter as appropriate).
  2. Create two categories, namely, Revenue and Expenses, on the left side ensuring you keep enough space to write under each category.
  3. The Revenue tab will include a list of all your income sources. Shuffle them up so you can see that they belong under the revenue category. In case you have only one source of income, list it as “gross profit”.
  4. Next, the tricky part - on the right side of the paper place two columns, namely A and B (imaginary). Note the gross profit amount in B, this being closest to the edge of the paper. In case you have more than one income, list them under column A, ensuring you place the total in column B and draw a line under it.
  5. Now, under the Expenses tab list down all your expenses. Shuffle them up as well. Your expenses may include insurance, advertising costs, rent, utilities, employees, legal expenses, office supplies, etc. Write down the figures against each in column A and draw a line after the last item and total them up. Write down the total amount in B with brackets around the figure. This indicates a negative value and requires you to subtract this amount from the above positive number. Do ensure you highlight the total expense figure. 
  6.  The last tab includes ‘net income’, make sure you align it the same way as preparing the ‘revenue’ and ‘expenses’ tab. The ‘net income’ is the difference between your total expenses and your total revenue. Write this figure down in column B and add two lines under it. If the number is positive, then it shows your profit and if the number is negative, it shows your loss. Your net income will have ( ) around it to show it is a negative number if you are running under a loss!

Of course, you can avoid all these complications by using a simple Excel spreadsheet or any accounting software where the entries and calculations are already present and you just need to add the necessary numbers!


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