The easiest way to create a profit and loss statement is to print it directly from the company’s accounting software package. A profit and loss statement (P&L) reveals how much a company earned over a designated period, like a quarter or year. A profit and loss statement is also called an “income statement,” as it presents the revenue and expenses that ultimately created profitability — or loss — for the period. Here’s an example of a P&L statement (here called an income statement) for the Kraft Heinz Company.

• The statement is particularly useful when viewed on a trend line, to see how an organization is faring over time.
• Shareholder equity is equal to a firm’s total assets minus its total liabilities and is one of the most common financial metrics employed by analysts to determine the financial health of a company.
• This statement, also referred to as a “P&L statement,” “income statement” or “income and expenses statement,” can provide valuable insights into the financial health of your business.
• It is how much money your company makes after all expenses have been paid, including taxes and debt payments.
• Investors and lenders use P&L information in calculations to determine a company’s profitability and risk level.
• Even though a large percentage jump in earnings may seem positive at first glance, if the same period the year prior had very low income, the growth might not be as significant.

If you’re creating an income statement by hand, using a spreadsheet program like Excel or Google Sheets will help you keep the process simple. Depending on the product you use, you can find an easy template instead of building a document from the ground up. For instance, Microsoft Office offers a series of Excel templates for P&L statements.

Best accounting software to create a profit and loss statement

For a more complete list of accounting software applications, be sure to check out The Ascent’s accounting software reviews. The most important and critical information is included in the main P&L report, in summary form. As time permits, the manager can drill down to the more detailed information in the supporting schedules for each variable and fixed a profit and loss report does not include what? expense in the main P&L report. If there is still a discrepancy on the income amount between the two reports, continue to Step 5. Here are 3 key insights you can gather from the information in your profit and loss report. In addition, by using the vendor payment feature of RazorpayX, businesses can add invoices and track vendor payments very easily.

As you learn how to analyze your profit and loss statement, you can identify places where you can reduce costs, increase sales, and balance your cash flow more effectively. With opportunities for growing your business everywhere, knowing your financial health is key to finding the right opportunities for your company. Along with a balance sheet and a cash flow statement, a P&L statement is one of the three primary financial statements used to determine a company’s financial health.

What Does the Profit and Loss Statement Show?

Typically, interest expenses arise from a company borrowing money, for example, through a business loan, line of credit, or credit card. Interest expense is the total interest payment you make to creditors for a specific period on your P&L statement. However, if gross profit has remained consistent but net profit is down, that signifies an increase in operating expenses, so you’ll want to start looking at ways to cut expenses. While one profit and loss report is helpful, comparing them can be even more helpful.

And this information is useful for management control because, generally speaking, controlling costs focuses on the particular items being bought by the business. It matters because it shows investors, analysts, and business owners whether a company is making or losing money. A careful review of the P&L also can stimulate ideas for cutting expenses and increasing revenue.

How profit and loss statements work

Balance sheets are built more broadly, revealing what the company owns and owes as well as any long-term investments. Unlike an income statement, the full value of long-term investments or debts appears on the balance sheet. The name “balance sheet” is derived from the way that the three major accounts eventually balance out and equal each other.

• We always recommend meeting with an accountant or other financial advisor at least once when you first start creating financial documents for your business.
• The profit and loss report is a summary of the business’s income, less its day-to-day running costs, over a given period of time.
• It represents interest payments on any borrowings, be it bonds, loans, convertible debt, or lines of credit.
• After all, expenses like rent, employee paychecks, damaged inventory, bank fees, and a host of other expenses and liabilities come out of your bottom line.
• Total operating expenses are deducted from gross profit to get net operating income.
• The balance sheet is also a supporting document when creating a cash flow statement.

Use our quick-reference guide below until you are familiar with the formulas. We’ve also indicated when to use each formula in our step-by-step instructions for preparing a basic profit and loss statement. For a basic P&L statement, you only need your credit card and bank account statements. Supplement these documents with invoices, receipts, and other transactions not listed on your credit card or bank statements.

What to Do Once You Have Your First Profit and Loss Statement

Direct costs can also include the costs of the labor that goes directly into your product or service. Purchasing a lawn mower isn’t your only direct cost—the amount of money you pay an employee to push the lawn mower is also a direct cost. List each revenue source as its own line on your profit and loss statement.

For example, to apply for loans, companies must provide evidence of their financial standing and ability to make consistent payments. A balance sheet considers a specific point in time, while a P&L statement is concerned with a set period of time. To calculate net profit, subtract the total expenses from your gross profit. Cost of goods sold, or COGS, are the direct expenses incurred to produce products or deliver services to customers, including direct labor and materials.