A profit and loss statement, also called an income statement, determines if your business is making revenues or running at a loss. Profits for a given period of time are listed and subtracted from these profits are the operating and non-operating expenses of the business. If the net profit yields a positive amount, then the business is making profits. But if the expenses are greater than the gross profit, then the business is running at a loss.
It is important to note that you should keep all expense receipts so that you can put it on the expenses list. Keeping records of your expenses lets you claim it on the income statement. Otherwise, you will not have any supporting documents to prove that you spent this kind of amount. Here’s how to make a profit and loss statement.
- You will need a sheet of paper, pen and calculator, and any pertinent documents relating to the revenues and expenses of the business in a given period of time.
- Organize your receipts according to the type of expenses. Gather the utilities bill together (water, electricity and telephone bills), payroll of employees, rent receipts, office supplies receipts, insurance papers, etc.
- On your sheet of paper, write “Income Statement (name of business), For the Quarter/Year Ended (indicate quarter/year)” on the top middle.
- You will need at least three columns for the income statement, so make sure to leave enough space for three columns.
- Under the title, on the left hand side, write Revenues. It will fall under the first column. Under it, list down your sources of income and its corresponding amounts. The subtotal of your revenues will be on the second column. Total the revenues and put the amount on the third column. That will be your Gross Profit. If you only have one source of income, write Gross Profit in front of the amount. It will fall under the third column, leaving the second column blank.
- On the first column under the gross profit entry, write Expenses. This is where you will list down all the expenses incurred by the business during a given quarter or fiscal year. Examples of expenses are office supplies, utilities, rent, salaries of employees, bank and credit card fees, cost of goods sold, etc. Each amount will fall under the second column. Compute all these expenses and write the total under the gross profit, on the third column.
- Subtract the total expenses from the gross profit. This will be your Net Income. The difference will determine the income status of your business, whether you are making revenues or losing money.
It is imperative in making a profit and loss statement or any other kind of statement (e.g. balance sheets) to double check all the entries and their corresponding amounts to avoid making mistakes. Income statements for big businesses help investors and creditors review the past financial performance of the business and predict future performance, thus helping them decide whether to continue investing in the business or not.