A profit and loss statement -- or P & L-- is a summary of revenues and expenses for a set period of time. It is used by businesses to show the financial results of operations for a month, year or other period of time. It is also used by individuals to assist in the budgeting process. A profit and loss statement can be prepared by hand or in a spreadsheet or an accounting software program. Whether preparing manually or with a computer, the steps to completion are the same.
Format your P&L statement using a standard format. The header of the statement includes the title "Profit and Loss Statement," then the period of time it covers, for example, "for the year ending December 31, 20XX." The first section in the statement is the revenue section, with rows for each type of revenue. The expenses section follows with a row for each major type of expense plus one for miscellaneous expenses. Each section has a row for a subtotal and, at the bottom, enter a row for revenues minus expenses, called "Net profit."
Add together the totals for the time period in question of each revenue and expense category. Use bank statements and invoices to ensure that you capture all of the applicable financial transactions.
Input the totals for each revenue category on the P&L. Each category will go on a separate line. You can list revenues in dollar amount order from highest to lowest or in alphabetical order. If there is more than one revenue category, add them directly underneath the last category. If you are selling goods, list the total of the cost of the goods sold below the revenue subtotal. Subtract the costs from the revenues to generate a new line, labeled "Gross profit." If you are preparing a personal financial statement, or if you have a service business, these extra lines are not needed.
Insert the totals for each expense category into the P&L. The categories can be listed from the highest to lowest totals or in alphabetical order. Review the transactions in the "Miscellaneous expenses" line and reassign them to other categories if they belong there. Add up all the expense categories and subtotal below the expense section.
Subtract the expense total from the revenue (or gross profit) total. If the number is positive, the line is labeled "Net profit." If it is negative, it is shown with brackets around it and is called "Net loss."
Keep expense receipts in file folders for each category throughout the year to make adding them up at year end easier.
Don't include money coming in or going out that doesn't represent an income or expense item. This includes loan principal payments, credit card advances and payments for items included in the previous year.