To prepare a profit and loss sheet, start with the total income or revenue of the business or company and subtract the cost of goods or products. This gross profit value must then be subtracted by all the expenses of the company, resulting in a net profit or loss.
A profit and loss statement begins with a general entry for revenue. Depending on the type of business, this revenue comes from the sale of goods or products or from investments and trade. If the business deals with goods, the value of the goods is reduced first in order to obtain a gross profit value.
After determining the gross profit, list the expenses on the profit and loss sheet. Common expenses include debt payment, operational expenses, taxes and interest expenses. Each company has additional expenses related to the specific area in which it operates, such as accounting fees, advertising, depreciation, insurance, repairs and maintenance, wages and salaries.
Once the profit and loss sheet subtracts each of the expenses, the resulting number is the net profit. It is possible for this number to be either positive or negative, representing either a profit or a loss. This final total is called the "before owner's salary" profit, and it represents the quarterly or annual value of the company.