The Profit and Loss Statement Format: What You Need to Know
The profit and loss (P&L) statement is one of the top three financial statements companies produce regularly. This key financial document can tell you how well your company is doing and determine your financial position.
But how do you generate a profit and loss statement? Keep reading to find out more about the profit and loss statement format and how it can help your business.
What Is a Profit and Loss Statement?
The P&L statement gives a clear view of how a company spends its money and where it’s coming from. The statement outlines revenue, operating profit, and all business expenses.
Profit and Loss Statement vs. Other Financial Statements
The purpose of a P&L statement is to show your company’s financial health. This is important to investors and financial institutions. An accurate P&L statement can show managers where too much money is being spent to get control of costs.
Other financial statements show varying financial information, such as assets and liabilities. Combined, these financial documents help you to understand your company’s financial standing.
The Profit and Loss Statement Format
There are many profit and loss statement templates available where you can input your information. But what information should you include? Find out the guidelines for a P&L statement below.
What to Include
A true profit and loss statement has several elements, including:
- Revenue
- Cost of goods sold
- Expenses
- Gross profit
- Operating expenses
- Depreciations
- Earnings before interest and tax
- Earnings before tax
- Net profit or loss
Each section of the P&L statement is important as the rest of the statement builds from it. You can create a profit and loss statement at any time, but most companies have a schedule of monthly, quarterly, or annually.
How to Calculate Revenue
The revenue section includes all sales and other forms of income. Cash and accounts receivable should be included in revenue.
How to Calculate Cost of Goods Sold
To calculate the cost of goods sold, you need a clear picture of how much the materials and supplies cost for each product sold. If you purchase already produced products, you would use that expense as the cost of goods sold.
How to Calculate Gross Profit
To calculate gross profit, you subtract the cost of goods sold from revenue. This is the profit before you take any other expenses or losses out.
Operating Expenses
Your operating expenses are everything you pay to keep your business running. These include labor, advertising, rent, and professional services.
To calculate operating profit, you would subtract operating expenses from gross profit.
Net Profit or Loss
After you have the operating profit, you would subtract taxes and any final debts. This will tell you if the company has a profit or a loss.
Create Your Profit and Loss Statement
Whether you decide to use a template, an accountant, or to create one manually, you now have the information you need to generate an accurate profit and loss statement format.
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