How to Use Profit and Loss Statements
Whether a business sells goods or provides services, a P&L statement can help determine how it has been performing in the past and predict how it may perform in the future. For new businesses, a profit and loss statement will give you a good idea of how things are going. Regardless of the type of business, the first step is to determine the period of time to be evaluated — usually for a quarter but can be a month, a year, or even a week.
P&L statements are typically prepared by owners or accountants, and used by owners, officers, and shareholders to get a feel for the state of the business. A P&L statement can also give potential investors or buyers a quick view of the state of the business.
Individuals can also use a profit and loss template to track their personal expenses and income so they know if they are saving money or spending more than they make.
Profit and loss statements can be prepared automatically by accounting software packages, but if your business doesn’t use one, you can choose from the variety of free profit and loss templates below. These templates are available in Microsoft Excel format, and you can download and customize them to fit your business requirements. You can also expand the templates to track income from multiple sources, and use them to view the your P&L profits and losses during various time periods (monthly, quarterly, annually, etc.).
Steps to Fill Out a P&L Statement
After you’ve determined the period of time to be evaluated, complete the following high-level steps to fill out a P&L statement:
- Enter the net revenue from your primary business activity.
- Subtract returns and allowances.
- Subtract cost of goods sold (i.e., expenses directly related to producing your product, like labor/salary and wages, materials, etc.).
- Subtract recurring expenses (i.e. rent, insurance, sales and marketing, transportation, office equipment, rent, administrative, R&D, etc.).
- Add any non-primary business revenue (e.g. interest, sale of assets).
- Subtract taxes and interest.
- Subtract depreciation and amortization.
- Subtract non-recurring expenses (e.g. theft, legal action, fire damage, delinquent accounts etc.).
Once you’ve completed these steps, you’ll see your net profit or loss.
Additionally, note that operating income can be determined by subtracting gross profit from total expenses, and that operating expenses can be determined by adding all expenses.
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What Is the Difference between a Profit and Loss Statement and an Income Statement?
Most online sources say that profit and loss statements and income statements are the same thing. You can use the terms interchangeably. Other common names include earnings statement, break even analysis, and statement of income (or income statement).
However, in the discipline of accounting, there is a similar term that you should be aware of in order to avoid confusion: A profit and loss budget is a tool for estimating future revenue and income.
Estimated Profit and Loss Using Projections
Below you’ll find several downloadable profit and loss templates; you can also use them to estimate profit and loss for future time periods. Use projected data (rather than actual data) for future time periods, and see where the numbers land. You can then adjust the projections to see how an increase in income or a reduction in expenses will affect the potential profit or loss for the projected period.
Creating a Profit and Loss Statement in a Minute
If the income and expense numbers are readily available, you can create a rough profit and loss statement in a minute. The numbers for income will come from sales receipts, and the cost of goods sold will include raw materials, overhead, and any labor costs associated with creating the goods or services you’re selling. Expenses will include all the money spent in order to run the business, such as rent, taxes, and wages. Fill out the appropriate categories in the basic template below to get a quick overview of where the business stands for the selected time period.
Profit and Loss Statement Templates
All of the profit and loss templates below contain a section for operational expenses. Each template also includes fields to enter income from various sources as well as fields for expenses. Income and expense categories can be high level (e.g, vehicle expenses) or more granular in detail (gas, maintenance, repairs, parts, etc.). You can customize each template by adding new lines or changing the category names.
You can use the templates to calculate the P&L for a month, a year, a quarter, or even three years. The profit or loss will display near the top of the template.
Small Business Profit and Loss Template
Use this simple template if the categories under income and expenses don’t need to be broken out. This template can be used by service, retail, and B2B organizations. The income section includes space to show income and to deduct the cost of goods sold. The expenses section includes common categories, such as wages and benefits, insurance, and taxes. To use this template for multiple periods (e.g., six months or three years), save a copy for each time period.
Self-Employed Profit and Loss Template
Self-employed people and freelancers have unique needs. This template takes these requirements into account by breaking out income by client and by using expense categories that apply to people who work for themselves.
Restaurant Profit and Loss Template
Food service businesses have to keep track of their food and beverage inventories. This template has entries for different types of inventory — including multiple beverage categories, such as draft beer, canned and bottled beer, wine, spirits, and non-alcoholic beer — in both the sales and cost of goods sold sections.
Personal Profit and Loss Template
Individuals and families can use the profit and loss model to track their income against their spending and see if they are spending more or less than they make. This template is customized to include personal expense categories, such as entertainment, food, and household supplies.
Advanced Profit and Loss Template
This particular template contains many more categories than do the other templates in this article, and allows for a more detailed breakdown of expenses and revenue. The categories are grouped into sections. Enter data on the monthly tab, and see the year-to-date totals on the YTD tab. The monthly tab also has a chart that tracks month-to-month changes in total revenue and total expenses. This template can be used by service, retail, and B2B organizations. To use this template for multiple years, make a copy for each year.
Links to Other Financial Documents
Financial statements used by businesses include a cash flow statement and a balance sheet. A cash flow statement tracks where money comes from (income from customers, the sale of property or other assets, returns on investments, etc.) and goes (the purchase of inventory, loan payments, or wages). A balance sheet is a quick snapshot of an organization’s financial position: It shows the company’s assets (accounts receivable, inventory, and property, etc.), liabilities (taxes owed, long-term debt, and accounts payable), and equity (the owner’s investment and retained earnings).
Net income from the P&L is linked to both the balance sheet and the cash flow statement. It becomes the retained earnings section in the other two documents. The complex nature of links to other statements is beyond the scope of this article — consult your accountant to better understand these relationships.
Cash Flow Statement Template
A cash flow statement provides a solid picture of the inflow and outflow of cash within your company. Use a cash flow statement template in conjunction with your balance sheet and income statement to garner a comprehensive look into your company’s financial status. This cash flow template includes two additional worksheets to track month-to-month and year-to-year cash flow.
Download Cash Flow Statement Template
Balance Sheet Template
A balance sheet is used to take a quick snapshot of a company’s financial position at a given moment. Use this balance sheet template to summarize the company’s assets, liabilities, and equity and give investors an idea of the health of the company.
Download Balance Sheet Template
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