Profit and loss are two important things to consider when determining the performance of a business. Be it small, medium, or large, a business must have proper profit and loss statement to determine the future growth of the business. It also helps businesses or accounting firms to make better business decision in the future. Therefore, creating a proper business profit and loss statement report is crucial for you. Unless you know the P/L statement, you may not make any decision about investing in the business.
As a business, if you ain’t able to create P/L statement report, then this article is your worth read. Because this article is going to highlight some best steps that will help you create P/L statement.
Without wasting much time, let’s get started from scratch.
What is profit and loss statement?
In simple words, a profit and loss statement is a copy that provides you detailed information regarding both revenue and expenses of your business. Believe it or not- a basic profit and loss statement can provide you with a convenient window through which you can view your company’s revenue and expenses. Additionally, the profit and loss statement can be a useful tool for creating an overall budget of your business or calculating your working capital.
Without a spec of doubt, profit and loss statement can help in growing your business eventually.
Let’s now dig deeper and talk about the steps to create P/L statement report.
Important steps to follow to make profit and loss statement
Here are some of the crucial steps to follow when you’re about to create P/L statement for your business.
Step 1: Calculate Revenue of the Business
The first step you need to take when creating profit and loss statement is to calculate the revenue of the business. As a business, you must have proper business record. And how much your business has generated revenue with the span of time. For that you can obtain current account balances from your general ledger like cash and current account receivables. If you’re planning to create a monthly account report, you will have to include the revenue of that time frame.
Step 2: Calculate the goods you sold
Unless you sell any good, you can’t expect to gain profit in the business. Well, you will surely sell items within a month, so whatever items you have sold or will sell in the future, make sure to include the profit you earned from the sold items. Moreover, if you’re selling services, you then have to include the cost of your time or employee’s time who delivered the services.
Step 3: It’s time to calculate the expenses
If you haven’t determined the cost or expenses of the business, then you must calculate all your operating expenses. What are operating expenses? The operating expense include: rent, payroll, travel, allowance, postages, utility bills, equipment cost, and many more.
Step 4: Don’t forget to add additional income to your operating profit
Do you have any source of extra income? If yes, you must add that income profit to your profit and loss statement report. The additional income profit could be anything like interest income, dividend from investment, so you have to include them in the report as well.
Step 5: Now calculate interest, taxation, and depreciation
In the next step you have to focus on calculating the interest, taxation, and depreciation of the company. Sometimes, the company has tax dues as well as depreciation and amortization expense (it is the expense which reduces the value of company’s intangible asset). If you’re not able to properly calculate interest, tax dues, and depreciation of the company, make sure to hire accounting services in Portland to make a better P/L statement for your company.
In the end
Profit and loss statement is one of the most crucial parts any business. If you don’t create effective P/L statement, you won’t be able to look at your company’s finances. Creating an effective copy of profit and loss statement by following the above steps will help you determine whether your business is profitable or not. If your business needs any additional help, you can always consult us. Kayabooks is here to help, just get in touch with us.