A profit and loss statement presents a detailed analysis of your company’s revenues and expenses. It summarises a company’s earnings, expenses, and sales over a given period. You can use this information to calculate your working capital and create a budget.

You can generate a profit and loss statement for your company on an annual, quarterly, or even monthly basis.

Here’s a step-by-step guide to creating an efficient profit and loss statement.

1. Calculate Revenue

Calculating revenue is the first step in compiling a profit and loss statement. You can get current account balances, such as current accounts receivable and cash, from the company’s general ledger.

Make sure to add all the revenue received to your calculation, whether by selling an office supply or selling your service or products.

2. Determine the Cost of the Goods Sold

If you’re selling manufactured products, add the purchase price and the cost of getting them to your place.

If you’re manufacturing the product yourself, add the cost of raw materials and the associated costs. If you’re selling a service, add the cost of the time you or your employees are serving.

3. Calculate Gross Profit

You deduct the cost of goods sold from the revenue to calculate gross profit. It’s the profit your company makes by selling its services and goods. If your cost of goods sold is more than your revenue, your company is at a loss.

Gross Profit/Loss = Revenue – Cost of Goods Sold

4. Determine Your Operating Costs

Calculate your operating costs by adding postage, utilities, equipment, wages, travel, and rent expenses.

5. Calculate Operating Profit

You then deduct the operating expenses from your gross profit to get the operating profit.

Operating Profit/Loss = Gross Profit – Operating Expenses

6. Calculate EBITDA

If you have any additional sources of income that you’ve missed so far in the profit and loss statement, add them to your operating profit.

This income may be in the form of dividends from your investments or interest. This is your earnings before interest, taxes, depreciation, and amortisation, better known as EBITDA. 

EBITDA = Operating Profit +Dividends earned + Interest Income

a calculator, pen, and papers on a table

7. Calculate Amortization, Depreciation, Taxes, and Interest

The next step is to figure out any outstanding amortisation costs, depreciation, taxes, and interest payments.

8. Calculate Net Profit

To get your net profit or net income, subtract amortisation costs, depreciation, taxes, and interest payments from EBITDA.

Net Profit/Loss = EBIDTA – (Amortisation + Depreciation + Taxes + Interest

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