How Do You Prepare a Profit and Loss Statement?

Preparing a profit and loss statement for a business entails calculating the net profit by knowing information, such as revenue, net sales, cost of goods, gross margin and operating expense for a certain period of time, as noted by the Edward Lowe Foundation. To prepare a P & L statement, which is also called an income statement, it is important to know what different terms mean and any equations needed to determine the net profit.

To find the net profit from a simple P & L statement, a business owner goes through a series of steps that requires knowing the business's revenue and expenses. The revenue is the sum total of money that a business makes during a certain time period, as noted by Fundera Ledger.

  1. Prepare the heading for the P & L statement worksheet
  2. Enter at the top of the worksheet the company name, state that this is a P & L statement on the second line and add the time period it covers on the third line.

  3. Calculate the gross margin
  4. Enter the company's net sales revenue, which are all sales generated less any discounts on the following line. Record the cost of goods (beginning inventory + purchases - ending inventory) on the line below net sales. Subtract cost of goods for net sales to get gross margin. Enter this value on the line below cost of goods.

  5. List all expenses
  6. Record all company expenses that can include employee salaries, overhead costs, office supplies, telephone, utilities and advertising. Add up these expenses to get the total operating expenses.

  7. Find the net profit or income
  8. Subtract the total operating expenses from the gross margin to get net profit. This is the last line of a simple P & L statement.