A profit and loss statement, also known as an income statement, is a summary of a business’s revenue and expenses for a set period. For a self-employed individual, the profit and loss statement’s net profit figure will reveal how much money he have made for the set period. A year-to-date profit and loss statement includes all financial transactions from the beginning of the current fiscal year to the current date. Use the profit and loss statement for the fiscal year to complete form 1040, schedule C (Profit and Loss from Sole Proprietorship Business) for the IRS.
Revenue is the money received from the sale of a firm’s product or service during a given period, according to Investor Dictionary.
Cost of Goods Sold
Cost of goods sold, also known as cost of sales, includes all goods and service expenses accumulated to generate revenue. Costs of goods sold transactions are expenses that you separated from the other expenses and offset against revenue to create a total known as gross profits.
Gross Profits = Revenue – Cost of Goods Sold
Expenses are any money paid out from the business to achieve a goal or purpose. Include in this category any money paid out of your business that is not classified as cost of goods sold. For your own clarity, you can divide these expenses into categories such as marketing and administrative.
Income = Gross Profits – Expenses
Other income is any income you receive that is not revenue. An example of a financial transaction that would fit into this category is a rebate from a manufacturer for a purchase you made. The total of these transactions is your other income.
Include in the taxes category all taxes you paid including payroll, income and real estate taxes.
To get your net profit, combine your income and other income and subtract the cost of taxes.
Net Profit = Income + Other Income – Taxes
To arrive at the net profit, you must include all the revenue, cost of goods sold, expenses, other income and tax transactions for the set period in your profit and loss statement.
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