An essential document for your financial reporting is a profit and loss statement, which provides information about your business's past activities.If you're applying for a small business loan, you may need to create one.You can use your business's basic financial records to create a profit and loss statement, even though you can find templates to use.
Step 1: Pick the time period you want your report to cover.
To cover an entire year of operations, you may want to create a profit and loss statement for a few months.The period of time the statement should cover may be dictated by the third party.A profit and loss statement should cover at least one quarter.A profit and loss statement that covers more than a year will usually have too much data to be useful.
Step 2: Your data should be adjusted accordingly.
A profit and loss statement that only covers a short period of time, such as three months or one quarter, can have more detail than one that covers an entire year of operations.The profit and loss statement should be less detailed if you cover more time.If you are preparing a profit and loss statement for the last six months, you may want to include income and expense totals for each month.If you have a profit and loss statement that covers an entire year, it may be helpful to break it down into quarters.
Step 3: Documentation of sales figures and other revenue should be gathered.
To prepare your profit and loss statement, you'll need raw figures for all income your business has earned during the period, including gains from assets.Gathering these documents may be a challenge if you don't use accounting software.If you haven't recorded income, you'll have trouble creating this statement, as well as having trouble preparing your taxes.If you divide your income into general categories, you can see how much money your business is making.Capital gains and other non-operating income should be separate from operating income.If you run across any gaps in your record-keeping while you're gathering income information to complete your statement, make a note to fix the problem as soon as possible.
Step 4: Take your income over the period.
You want to include totals for smaller periods of time, such as months or quarters, in addition to the ultimate total income for the entire period covered by the statement.You want totals in each category as well as the total of all income over the given period and each division of that period.If you have income in three categories and your profit and loss statement is covering three months, you'll want totals for each category over the entire quarter.You want to have total income in each category for the entire quarter, along with your biggest total for income over the whole quarter.
Step 5: Information about your expenses should be gathered.
Ensuring that you have an accurate profit and loss statement is one of the most important things you can do.You can't account for expenses if they are not in your records.You'll need records for expenses incurred during the time period you've chosen for the profit and loss statement to cover.Major expenses such as lease payments or utilities will probably be easy to account for, but don't forget the small supply purchases or temporary contract labor.The raw materials you purchase to create another product are part of your expenses.Inventory for retail stores should be included in your expenses for the purpose of a profit and loss statement.
Step 6: There are general categories for operating expenses.
How you categorize your operating expenses depends on whether your profit and loss statement will be used internally or prepared for a potential lender.If you're preparing a profit and loss statement for a third party, you probably don't want them to have explicit details about your business and expenses.For this reason, you want to use categories such as "advertising" or "office expenses."If you're making a profit and loss statement for internal analysis, you may want to include more expenses.If you were experimenting with different methods of advertising and marketing, you might want to separate internet and television advertising from each other.
Step 7: Non-operating expenses should be included.
Interest on existing loans are examples of non-operating expenses that don't directly relate to the operation of your business.Legal fees and bank service charges are included in non-operating expenses.You can either list them as non-operating expenses or give the total for each period.
Step 8: List all the losses your business has incurred.
Capital losses from the sale of company assets, which don't fit under any expense category, are included in your business's losses.Your losses should be itemized specifically.In most cases, these amounts are unlikely to recur, so it's important that they're accounted for.
Step 9: Decide if you want to use a template or a spreadsheet.
If you have a spreadsheet application, you can use a template that comes with it for your profit and loss statement.Creating your own spreadsheet can allow you to modify the information in a more precise way.If you're preparing a profit and loss statement for a third party, such as a lender, they may want the information arranged in a certain way.Your spreadsheet should fit your data if you know the information you need to include.
Step 10: You can create rows and columns.
If you're going to create a spreadsheet, organize it with your income and expense entries as rows and your time periods as the columns.The corresponding cells will hold your data.It is important that your organization is easy to follow.Your income entries will cover the top lines of the spreadsheet, while your expenses will appear in the lines below.You will be subtracting expenses from your income to find your net profit.Your first column will identify the types of income and expenses that appear in each cell of the table, and each column that follows will indicate the time period for which those numbers apply.If your profit and loss statement covers a single quarter, your spreadsheet would have at least four columns, one for labels and the other three for each month included in the quarter.There is another column to the far right for totals.
Step 11: Decide which method you want to use.
There are two ways to make a profit and loss statement.The single-step method subtracts expenses and losses from revenue and gains.You can use the multiple-part method to separate operating income and expenses.Net operating profit is the difference between your sales and your selling and administrative expenses.Adding other income to your net operating profit will give you a net profit before taxes.If you have an inventory-based business, you should use the multiple-part method.If you're preparing a profit and loss statement for a third party, they may have a say in how you use the figures.If you're applying for a small business loan, many banks use a multiple-part method for profit and loss statements.
Step 12: The values should be entered.
You're ready to enter the figures you found for your income and expenses when you set up your spreadsheet.It's a good time to check your math.Your totals for each category of income or expense are automatically populated when you set up your spreadsheet to total particular cells.You need to total your income and expenses for the entire period after you've entered all your numbers.You'll need separate totals for operating and non-operating income and expenses if you're using the multiple-part method.
Step 13: Subtract your expenses from your revenue.
If you use the single-step method, you can use simple math to find your business's net profit.The multiple-step math involves finding operating profit first, then net profit before taxes.While the goal of a profit and loss statement is to find your net profit, this isn't the only important figure in the document as a whole.A snapshot of the money coming in and out of your business is provided in your profit and loss statement.It is possible to use it to analyze your business's financial health.It is possible to see the raw numbers in a spreadsheet format to identify areas for improvement.