Profit and loss statement is an important financial statement that is used to clear picture of financial performance of your business. It is designed with balance sheet and cash flow statement because it helps a lot to get net profit of the whole accounting period. It summarize income and expenses of the business therefore it is prepared periodically either annually, quarterly or monthly. Profit and loss statement is prepared with a basic accounting formula that is:
Income (Revenue Gains) – Expenses = Net Profit
This formula helps you to calculate total profit and loss of your organization. If amount of incomes exceeds from the expenses of the business then the business have made profit during a specific time period otherwise loss in case of exceeding expenses than income. Profit and loss statement is a great tool to identify the income and expenses ratio of your organization. With the help of effective profit and loss statement, you can have better control on the expenditures of the business.
Here is preview of this Profit & Loss Template created using MS Excel,
Ideas to Design Effective Profit & Loss Sheet
Profit & loss sheet can provide you better picture of your business financial state so it is necessary to design an effective profit and loss statement. Today I will share some ideas to design effective profit and loss sheet:
- In first step, it is necessary to collect all sources and records of revenue depending on the nature of your business. Sources can be different such as it can be receipts, services, products or any kind of fee.
- Include cost of goods sold in order to determine actual profit. Cost of goods sold (COGS) can be varied because it depends on the nature of business, type of products, overhead costs, quantities of goods and different other variables. Cost of goods sold is necessary to calculate appropriately because it can change the whole picture of profit and loss sheet in every month.
- Do not forget to consider allowances and returns because these can make clear different in the prices of your products. These should be recorded in same month to get accurate report of monthly sale. In case of return of any item, the amount is required to subtract from the total revenue of month. Poorly record allowances and returns can create great difference in the actual finances of each month.
- Cost of goods sold will be summed up with the returns and allowances and subtracted from the revenue to get gross profit for your business.
- You have to calculate expenses of your business including payroll, cleaning cost, office supplies and all other possible expenses. Any amount that would be spent for the business operations will be taken under expenses.
- After getting gross profit about, you have to subtract taxes from it to get net income. If you get negative amount then this will be net loss and this will not be a healthy sign.
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