Almost every business makes use of the financial statements to take vital decisions. The financial statements reflect the overall performance of a particular company, firm, or organization whether it is working on a smaller scale or at the corporate level. The accounting software is usually used by the companies at a larger scale in order to prepare the essential financial statements, the most prominent out of which is the profit and loss statement. However, if the firm cannot afford the software and has to choose the manual option then a profit and loss statement template would be highly recommended to make the entire process a lot hassle-free.
Profit and Loss Statement
A profit and loss statement as the name implies depicts the profitability of the company as well as the losses which occur when the expenses are deducted from the generated revenues. The profit and loss statement is also called the income statement but it is different from a cash flow statement. It can be prepared for a monthly, quarterly, or annual basis.
Projected Profit and Loss Statement
A projected profit and loss statement also called the pro forma statement gives the estimated results for a startup by taking into consideration the estimated revenues, expenses, profits, and losses.
Information Needed For The Profit & Loss Statement
In order to prepare the profit & loss statement, the following information is a must:
- Expenses incurred
- Cash transactions of all sorts
- All the relevant sources of income
- Information about the sale reductions
Making The Profit & Loss Statement
The following steps should be followed in order to prepare the profit and loss statement:
Step 1: Report the “Net Income” which is usually titled as “Sales”
Step 2: Report the business expenses, in terms of the percentage of sales (should be100% of sales).
Step 3: Report the “EBITDA” which is an abbreviation for the Earnings Before Interest, Tax, Depreciation, and Amortization.
Step 4: Report “Interest” and deduct it from “EBITDA”
Step 5: Report “Taxes” and deduct it from the remaining value.
Step 6: Report “Depreciation and Amortization” and deduct it from the remaining value.
Final Result: The final result depict the net income which could be positive (indicating profit) or negative (indicating loss).
Preparing A Projected Profit & Loss Statement
Usually, at the beginning of a startup, the pro forma statement is prepared. The following steps are involved:
Step 1: Report the “Estimated Expenses” and also include the miscellaneous items.
Step 2: Report the “Estimated Sales” for each month (include time and amount).
Step 3: Find the difference between the two values which will give an estimated result, usually in negative for a certain time. The difference in the values provides an idea about the amount required for the business startup and it has thus to be borrowed.
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An option to download a free template designed in Excel and have a step by step input fields to create a standard statement can be extremely useful for any business looking for a manual solution.