How Do You Create a Profit and Loss Statement?

To be able to assess effectively the financial health of the company, the Profit and Loss Statement or P&L Statement should be prepared. Creating a P&L Statement is not really that difficult. One important thing to consider is that the needed papers and documents should be complete and on hand when one is preparing a P&L Statement to ensure that the statement is accurate and complete.

The following are the steps in creating a P&L Statement:

  • Summarize all transactions, group and classify them accordingly and sum up all the transactions under the same category (i.e., all revenues, purchases of goods, utilities, wages, rent, insurance, etc.).
  • For the actual P&L Statement, on a clean sheet of paper, put in the header for the said statement. On the first line, write the name of the company; on the second line, write the words “Profit and Loss Statement” and on the third line, the period covered (i.e., for the year ending December 31, 2009).
  • On the fifth line, put in the first major category of this statement, the Revenues, on your left side of the paper. Indent five spaces on the next line then start typing in the sub-categories for revenues such as sales, rental income, services, etc. On each row of the sub-category, indicate the related amount for each sub-category then place a line under the last amount. Sum up all the amounts of these sub-categories and indicate the total on the last line for this category then place another line underneath such total.
  • After the total revenues, indicate the next major category: the Expenses. Below this major category, list all the expenses. Similar to revenues, the sub-categories should also be indented. Sub-categories will include the following: salaries, advertising, rent, utilities, communication, office supplies, repairs and maintenance, insurance, etc. Beside each of these sub-categories, type in the related amounts. Then sum up all the expenses and put in Total Expenses (again, place a line underneath the last amount and another under the total).
  • The last line is devoted to your profit (or loss). Place “Profit” or “Loss” on the last line of your P&L Statement (align this with your “Revenues” and “Expenses” categories). Then get your actual profit or actual loss by deducting Total Expenses from Total Revenues. If you generate a positive number, this is a profit. However, if you generate a negative number, your business suffered a loss.

Note that the above steps are applicable for a service company. If your company sells merchandise or goods, you have to insert a new line after Total Revenues and put in an extra category. This is the “Cost of Goods Sold” which shows your cost when you purchased the goods you subsequently sold. After typing in the category “Cost of Goods Sold” and indicating the related amount, insert another line under the “Cost of Goods Sold” category and type in “Gross Profit”. Obtain the gross profit by deducting Cost of Goods Sold from Total Revenues. Your Profit or Loss will then be calculated as the difference between the Gross Profit and the Total Expenses.