A profit and loss statement (P&L) is a snapshot of your business’ financial performance at a point in time. Put simply: it measures your business’ profitability by reporting the revenue you generate from your operations, as well as the expenses required to generate that revenue. The P&L statement is also known as an income statement or operating statement. It’s also one of the five key financial statements used to report on an organization’s financial performance.
In this article, we explain what a profit and loss statement is and why it’s important for businesses. Then, we walk you through how to create one for your business using simple examples so that you can get acquainted with this useful financial document. Also, you’ll get a free blank profit and loss statement pdf at the end of this article.
What is a statement of profit and loss?
A profit and loss statement (P&L) is an important financial document that reports on the revenue and expense of your business. It also shows your business’ profitability by measuring how much you’ve made from your operations compared to how much it has cost you to generate that revenue.
This is one of the most important financial metrics to track week in and week out, so that you always know exactly what's going on with your company’s finances, and so that you can make adjustments when needed to remain profitable.
What does a profit and loss statement show?
P&L statements generally have two sections: Revenues and Cost of Goods Sold (COGS). The Revenue section of a profit and loss statement reports on the money you’ve generated from your operations. You can get this information from your accounting records by simply adding up the sales generated from your products or services.
As for the COGS section, it reports on the expenses required to generate that revenue. These can include the costs of labor, raw materials, inventory, fees, utilities, and other expenses required to run your business. Depending on the type of business you have, you may have different types of expenses. For example, a manufacturer would have different COGS than a software developer.
Why is a P&L statement important?
The profit and loss statement is an important financial document because it helps you analyze your business’ performance. It allows you to forecast your business’ future by predicting how much you’ll make from your operations, as well as how much it will cost you to generate that revenue.
The P&L statement helps you understand how well your business is doing. It allows you to compare different periods (e.g. last year’s P&L vs. this year’s P&L) to see how your business is growing or declining, as well as where it is having challenges.
With the help of the P&L statement, you can track your business’ progress over time and make adjustments to improve your performance. You’ll be able to identify areas of opportunity in your business that can help you improve your overall financial health.
What is pro forma profit and loss statement?
The pro forma profit and loss statement is a type of financial projection that forecasts an organization’s future profitability. It can be used to evaluate a company’s acquisition or sale or be prepared to access financing. Unfortunately, a pro forma P&L statement is not a legally enforceable document. It’s simply a projection of the future profitability of a business that is prepared for discussion purposes.
How to prepare a profit and loss income statement?
The process of creating a profit and loss statement varies depending on your business. You’ll first need to gather the necessary data to report on your revenue and expenses for each financial period. As a general rule, the period could be a month, quarter, or year. It all depends on your business, financial circumstances, and the industry you operate in. Once you have collected the data, you can enter it into a spreadsheet and create the profit and loss statement.
If you’re unfamiliar with spreadsheets, don’t worry. It is easy to learn how to create a profit and loss statement once you know what data to report. Simply follow these step-by-step instructions and you’ll be able to create a functional profit and loss statement in Excel in only a few minutes.
Follow these steps to create a free blank profit and loss statement pdf:
1. Open Excel and select “Create New Spreadsheet”
2. Set up various columns and rows for your data
3. Input your financial figures into each cell
4. Create a formula that can tally the differences and insert it in the final row of the spreadsheet
5. Select the option to export the document as a .pdf file
6. Choose where you want to save the file and click “Export as PDF”
Remember to include the following rows in your profit and loss statement spreadsheet:
· Net Revenue
· Cost of Goods Sold
· Gross Profit
· Operating Expenses
· Net Income
Keep in mind, that if you don’t to worry about creating your own profit and loss statement, then you can always download a template from a site like LiveFlow. This can save you a bunch of time, and all you’ll need to do is plug in your data.
Summary
A profit and loss statement is a snapshot of your business’ financial performance at a point in time. It measures your business’ profitability by reporting the revenue you generate from your operations, as well as the expenses required to generate that revenue.
The P&L statement is a useful financial document because it shows where your business is spending money and where it’s generating revenue. This allows you to track your business’ financial health over time so that you can identify areas where you can make improvements.
Recommendation
LiveFlow is the premier financial accounting platform for small businesses. With helpful profit and loss templates, and numerous handy tools, like the new Live Budget vs Actuals tool, LiveFlow enables accountants and business owners to tackle even the most complicated accounting processes with ease. New users can explore the great features of LiveFlow with a free 30-minute demo. So, if you’re ready to take the stress out of bookkeeping, then be sure to try LiveFlow today.
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