As a business owner, you’ll be responsible for managing the financial health of your business. From handling the accounting duties yourself or having others take on this task. One of the more important documents for any type of a business is a profit and loss statement template.
If you’re outsourcing these services then it pays to know your way around the most important documents. Revealing your company’s revenue and expenses during a particular period, this form offers key insights into the economic health of your business.
Not sure how to create one? Today, we’re sharing a simple profit and loss statement template that’s flexible enough to work for most industry types. Read on to discover the details you need to know.
What is a Profit and Loss Statement Template?
Also known as an income statement, a profit and loss (P&L) statement is a critical business document that provides a “snapshot” of how your company performed over a set period of time.
In most cases, this time frame covers one quarter of a company’s fiscal year. The two most important categories displayed on the statement include:
- Accounts Receivable (money owed to your business)
- Accounts Payable (money your business owes to suppliers and other business expenses)
Let’s take a look at how these two figures can help reveal your business’s profits and losses.
The formula to calculate business profit is relatively straightforward.
Profit is how much money you’ll have available once you subtract all of your accounts payable (expenses) from your incoming funds (accounts receivable).
A business loss occurs when you spend more money than you make. In other words, you invest in an item but the return is not great enough to generate a profit. Two of the most common types of business losses are when accounts go in default and asset depreciation.
Why Use a Profit and Loss Statement Template?
There are multiple reasons why it’s important to generate a P&L statement every quarter. Key personnel within the company, including the owner and corporate officers rely on this document to understand the direction of the company.
If your P&L statement shows consistent losses, this is a red flag. It signals that it’s time to make major changes to your business model to improve its chances of survival. At the same time, this document can also reveal areas of improvement and growth within your company.
In addition to executives, company shareholders are also interested in seeing this data, as the financial performance of your company directly affects their financial investments.
Finally, you might also generate a P&L statement when you’re looking for financing for your company. From investors to loan officers, anyone who’s considering offering you a business loan will want to make sure your business is viable and financially stable so it can pay back the loan.
Key Elements of a Profit and Loss Statement Template
Now that we’ve covered what a P&L statement is and why you need one, let’s get into our template!
First, let’s review the key components that should be included in a profit and loss statement template. While each company has its own unique data, these elements are consistent and will help give the document its defined structure.
The main categories to include are:
- Net sales
- Cost of goods sold/cost of services rendered
- Gross margin
- Operating expenses
- Actual net profit
- Returns or discounts
- Salaries, Benefits, Wages
- Depreciation of assets
While some of these numbers will be simple to pull from other documents, others will require calculations before moving forward. These include:
- Gross margin
- Net operating profit
- Net profit before taxes
- Actual net profit
As you’ll notice, only actual net profit is included in your P&L statement. However, to reach this number, you’ll need to calculate your net operating profit and net profit before taxes.
Here are Profit and Loss Statement Template Formulas to Remember:
The following formulas are relatively simple but they do require you to be accurate with your calculations, otherwise your profit and loss statement with be inaccurate.
To calculate gross margin, subtract your total cost of goods sold (or cost of services sold) from your net sales.
A healthy gross margin reveals that your company is retaining a significant amount of capital on each dollar of sales. You can apply these excess funds toward your debt obligations or use them to pay other costs.
Net Operating Profit
You can calculate net operating profit by subtracting your operating expenses from your gross margin. For this reason, you’ll need to calculate gross margin first.
Net Profit Before Taxes
Calculating net profit before taxes is a two-step process. First, take your net operating profit and add any other sources of business income to that figure.
Then, subtract all of your other expenses. In addition to cost of goods sold, these additional expenses might also include other operating expenses, as well as interest expenses.
Actual Net Profit
With those more cumbersome calculations behind you, actual net profit is a more straightforward calculation. You’ll find this number by subtracting your taxes owed from your net profit before taxes.
Understanding Accrual Accounting
The basic formula of your P&L statement is revenue minus expenses. The most effective way to measure these incoming and outgoing funds is through accrual accounting. This is a form of basic accounting wherein you’ll post revenue as you earn it.
Likewise, you’ll post expenses as your business incurs them. By following the data in real-time this way, you can make sure your revenue and expenses line up. You’ll also keep the data fresh so that your quarterly P&L statement reflects only figures for that given time frame.
A Simple Profit and Loss Statement Template
Are you ready to begin preparing your profit and loss template? Let’s go through the steps required to set one up.
1. Add a Header to Your Profit and Loss Statement Template
The header of your P&L statement should include basic identifying information, including the name of your company and the timeline of the statement.
The latter will normally read: Profit and Loss Statement for the (Week, Month, Quarter, Year), or (Date Began) and (Date Ended).
2. Add Revenues
Start by listing your revenues for the time frame. Under your bolded “Revenues” row, create a row titled “Revenue from Primary Activities”. Here, you’ll list your total revenue earned from your company’s primary activities.
Label the next row “Minus Returns and Allowances”. Here, you’ll debit your company for any returns, refunds, rebates or discounts extended to customers.
Add a bolded “Total Revenue” line to add up the sub-rows above. The section should look like this:
- Revenue Earned From Primary Activity
- Minus Returns and Allowances
- Total Revenue
3. List Costs in Your Profit and Loss Statement Template
Next, you’ll list your costs. Under a bolded “Costs” header, add a row that reads “Cost of Revenue”.
This is all of the money you’ve spent on items pertaining to your business’s primary activities. For instance, if you own a bakery, these costs might include all the ingredients you bought during that quarter, as well as the paper products you purchased.
Note that if you operate a service-based company, you might not have as many tangible assets to purchase. As such, most of your costs will be included lower on the statement, in the “Operating Expenses” category.
This section will look like this:
- Cost of Revenue
4. Add Gross Profit
Next, make a line for your gross profit. You’ll get this number using the calculations described above.
5. List Operating Expenses
Operating expenses are any expenses that are unrelated to the direct, primary activities of your business. However, feel free to adjust these categories as required to fit your specific business’s expenses.
This section will look similar to this:
- Operating Expenses
- Employee salaries and wages
- Rent payments
- Payroll taxes
- General and administrative costs
- Research and development costs
- Marketing and advertising costs
- Total Operating Expenses
6. Add Operating Income
Next, it’s time to calculate your operating income. To do so, subtract your total operating expenses from your operating income. This will be a single line item on your P&L statement.
7. List Non-Operating or Other
Here, you’ll list any income that your business generated during the quarter that was not related to its primary activities. A few examples of this type of income include:
- Interest revenue
- Gain on sale of assets
- Income from a favorable legal action
- Other financial gains
You’ll also use this section to list any losses that your company experienced. These might include:
- Interest expense
- Loss on sale of assets
- Loss from losing a legal claim
- Depreciation and amortization
- Other losses
On the statement, you’ll list revenues first, with related expenses directly below in parentheses. That means the final list would look like:
- Non-Operating or Other
- Interest revenue
- (Interest expense)
- Gain on sale of assets
- (Loss on sale of assets)
- Gain from legal action
- (Loss from legal action)
- (Depreciation and amortization)
- Other gains
- (Other losses)
- Total Non-Operating or Other
8. List Discontinued Operations
Did your company discontinue any goods or services during this time frame? If so, list any resulting gains or losses here. The lines will look like this:
- Discontinued Operations
9. List Extraordinary Items
Did any unique or extraordinary circumstances occur at your business during this time frame? If so, list any resulting gains or losses here. The lines will look like this:
- Extraordinary Items
10. Add Pre-Tax Income
Next, include a single line item for your pre-tax income. To calculate this figure, find the sum of your operating expenses and non-operating expenses (except income taxes). Then, add your interest income to that figure and subtract that total from your gross revenue.
Gross Revenue – (Operating Expenses + Non-Operating Expenses+ Interest Income)
11. List Taxes
On the next line, list your income tax expenses. The lines will look like this:
- Income tax expense
12. Add Net Income
This is the final figure of your profit and loss statement. To calculate net income, you’ll subtract your income tax expenses from your pre-tax income. This final figure reveals your company’s profits or losses for the specified time frame.
A Simple Profit and Loss Statement Template for Businesses
Understanding how to use a profit and loss statement template is one of the first steps required when managing a business. However, it is not the only thing needed to successfully start a new business.
As you hire more employees and grow your business, you might need access to other forms of support, from financing to insurance. That’s where we come in.
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