A Profit and Loss (sometimes called “P&L” for brevity’s sake) statement helps a manager get a clear measurement of a company’s sales and expenses over a period of time.  The P&L statement helps managers get a realistic view of finances, showing the totals of all to revenue sources. On the P&L template, you will subtract all expenses related to the company’s income, giving you a clear overview of the financial progress you’ve made over the period of time. Small businesses tend to use a P&L statement every month, but larger companies may only do the math every quarter for purposes of reporting back to stakeholders, such as your board of directors, stockholders, or other investors.

A profit and loss statement is one of the major financial documents t hat is prepared by business owners or their accountants. Business owners and accountants use it alike. This is important because it can very clearly show the financial success of your business over a period of time – and it can also show where you’re coming up short.  For example, many online retailers consider the Xmas season to be the most important time of year for their trade, and keeping an income statement for this time period can help them check their own profits against the current trends in their industry. However, for much of the rest of the year, retailers tend to do much less business overall. Some months, a retailer will find that they are barely breaking even. However, if you include an entire quarter’s worth of sales, expenses, and profits, you may find that overall, your business is excelling.

Profit and Loss Statement Templates

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Did You Know?

A Profit and Loss Statement is also sometimes called an “income statement” or “earnings statement.” The template and categories included in the template will be relatively the same as a  P&L statement.

The P&L statement contains different categories of sales and expenses, including:

  • Net sales
  • Cost of goods sold
  • Gross margin
  • Selling and administrative expenses/operating expenses
  • Net profit

The Profit and Loss statement template will give you, as a manager or business owner, a feel for your cash flow and regular expenses.

There are multiple reasons to prepare a Profit and Loss statement template.   One reason is the simple accounting of the P&L statement answers the question, “Am I making any money?” All of your credits and debits are laid out accordingly in the statement, allowing you to look at regular expenses and your return on investment when it comes to advertising and marketing. In other words, as a business owner or manager, it is a valuable tool to monitor operations. Most of the time, you will prepare the P&L statement on a quarterly or monthly basis.

A monthly look at your P&L statement can help you discover what, if any, adjustments might be necessary to recoup losses or decrease expenses.  For example, maybe your business is paying too much in interest on its line of credit or credit cards. Are there some purchases that will save you money by purchasing directly from your cash flow? You may also find that you’re ordering certain supplies from companies on a weekly basis. Would it serve you better to buy these supplies in bulk on a monthly basis, instead? Where will your company get the b est. discount? Are there other vendors that offer similar supplies and better deals if you buy in bulk?

In addition to giving you a good view of your operational expenses, the profit and loss statement template can also help outsiders – such as potential investors or creditors — to evaluate your ability to manage and use your company’s resources.

Another very important reason, if you’re in the United States, to prepare a Profit and Loss statement is because it is a requirement for paying your business taxes. The P&L Statement is a record of businesses operations and it is used to assess that taxes on profits earned. In fact, if you’re located in the US, it’s actually the only financial statement required by the IRS. Other countries will still need the most important numbers from your statement, including net sales, profit and loss.

Profit and Loss Statement Forms

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Before You Fill Out Your Profit and Loss Template, Some Questions to Consider:

  • How do you currently handle inventory? Does your inventory method allow you to calculate/or accurately estimate the quantity of goods sold?
  • Are you able to calculate exactly how many goods or services were sold during the time period you’re using?
  • Do you have records of general expenses, such as equipment rental, office space rental and monthly payments you make regularly?
  • Do you have receipts and information on all of your office’s administrative expenses – such as paper, staplers, and other supplies?
  • Do you know enough about these transactions that you can easily separate selling-related expenses from outside expenses?
  • What kinds of losses have you experienced? If you own a retail location, did you include items that have been damaged and/or stolen? If you’re an online merchant, what kinds of chargeback fees are you paying? These are all a part of doing business, so don’t leave them out.

Don’t let small expenses fall by the wayside, either. Sure, a run to the office supply store for paper or rubber bands may seem like a trivial expense, but these expenses always add up.  Keep your receipts, including what you’ve purchased on credit, and make sure to include credit payments in your list of expenses.

 

What Kinds of Profit and Loss Statement Templates Are There?

P&L statements can be prepared using two methods, the Multi Step Income Statement and Single Step Income Statement. Multi Step income statements, as the name suggests, are more complicated and detailed than Single Step statements, and are typically used by large businesses. Single Step P&L Statements are best used by beginners and small businesses, so that’s what we will explain on this website.

 

Understanding Basic Terms On Your Profit and Loss Statement Template

Before anything else, you’ll fill in the header of your worksheet with your business name and the time period the form reflects. What time period should you monitor? Usually, a business fills out a statement on a monthly or quarterly basis, but if you’re in the middle of a huge marketing campaign or ad blitz, you’ll want to look at this information weekly for the duration of the campaign. You may also look at this information more closely during “peak season” – that is, when your business tends to sell like crazy. If you are a retailer, this means during the Xmas season or short-term sales period like back-to-school sales. If you own a waterpark, this means you’ll be looking more closely at your income during the summer seasons.

When you are filling out the template for your P&L statement, you may need a refresher on what certain terms mean. Gather all of the receipts and business bank account statements so you’ll have the data you need. Make sure any out-of-pocket expenses are accounted for.

Profit and Loss Statement Samples

 

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What Information Will Be Needed to Fill Out the Template? 

  • Net Sales: This represents total sales during the time period being analyzed, minus any expenses like chargebacks of returns/refunds. If you sell tangible items, this is usually a small percentage of your sales, about 1 to 2%. If you have high amounts of chargebacks, this is something you’ll need to work to reduce.
  • Cost of Sales/Good Sold: If you are a retailer, this is the wholesale price paid for goods during this time period. It does not include selling, marketing or administrative overhead. (Those expenses will be dealt with later.) This is just the basic price of goods or cost to manufacture goods. If your business provides a service, the cost will usually be “zero”, unless you have to buy something to create a final product (stock art, for example, if you’re a graphic designer.) If you make money from fees, commissions, and royalties, then you probably don’t have anything to put in this section.

If you are retailers or wholesaler, there are different ways you can calculate this section depending on how you work with your inventory. Don’t forget to account for shrinkage (loss, by accident, theft, etc.) into the equation. The easiest way to track inventory is count what you have on hand at the beginning of the accounting period, then see how much is left at the end of the period. You will then add in any expenses for re-ordering inventory or supplies if you run out.

Once this is done, it’s time to fill in selling, general and administrative overhead expenses for your business on the worksheet. This is the net operating expense, which means the costs of doing business. This includes marketing campaigns, office supplies, Internet costs, and any other day-to-day operating expenses.

 

Profit and Loss Template: What Do “Other Income and Other Expenses” Mean?

If your business makes money in less conventional manners, such as rent, royalties or investments, capital gains, or interest, this will go in the “Other Income” section of your template. Rents usually include thing such as renting out a back office or a few parking spaces to an outside party. Maybe your company decided to purchase some stock or other investment – that’s an income you’ll need to track and report. If you get a check from an insurance company for a loss, it will go in this section as well.

The flip side of this is “Other Expenses”. This is where you can report financial losses from bad investments, or the cost of an attorney if you’re facing a lawsuit. Even losses that are tangible, such as the theft of a laptop or an expensive equipment failure can go into this section. However, it’s important that when reporting this information you have a paper trail to back up your claims.

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Final Steps: Before You Calculate Your Profit and Loss Statement Template

An inaccurate P&L statement can cause some horrible decisions to be made and can also be a complete waste of time for you. Make sure the data you put into the template is accurate and complete. You don’t want to add in additional losses after-the-fact – it makes you look, at best, disorganized. At worse, it can make you appear incompetent.

Using digital records such as receipts, account statements and other bills will help you make sure your information is accurate.

Make sure you also place the numbers in the correct category. For example, office supplies belong in the “operating expense” section, not the “cost of goods sold” section. Accuracy is an essential part of good business practices. Take your statement out and compare it to prior statements, as well as the paperwork you created it from. If something looks wrong, or drastically different than the last time you did it, make sure to double-check all your headings and numbers.

 

TemplateLab October 17th, 2017