How to do a profit and loss statement

how to do a profit and loss statement

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Top Line

The first line of an income statement is sales revenue. Also known as the top line, it can be generated by selling products and services. After listing sales revenue, subtract any allowances for returns and the cost of goods sold, money spent on direct materials, labor, and overhead costs incurred to prepare the product for sale. Sales revenue minus sales allowances and cost of goods sold leaves your gross profit for the period, which represents the profit the business made on sales before considering other operating expenses.

Operating Income

Create a second section on the P&L statement for operating expenses, any costs incurred while performing business activities. Almost every businesses has selling, general and administrative expenses as well as advertising, marketing, utility, rent, insurance, bad-debts and wage costs. Companies with fixed assets should also list depreciation expenses on those items. Add up the operating expenses to arrive at total expenses, then subtract total operating expenses

from gross profit to arrive at operating income.

Non-Operating Income

After calculating operating income, create a separate section for non-operating revenues and expenses. Itemizing these non-operating items indicates how much income came from core business activities and how much came from other sources such as interest income from loans and gains from selling investments. Non-operating expenses could include a loss from a lawsuit, on an investment or interest expenses. Subtracting non-operating expenses from non-operating revenue leaves your non-operating income.

Final Steps

If your business experienced extraordinary events during the year, create a separate section below non-operating income for unusual items. They might consist of discontinued operations or items that are infrequent and unusual, like a natural disaster. Separating out these items help the reader understand that this income or expense probably won't recur. Subtract unusual expenses from unusual revenues to calculate unusual income. Add operating income, non-operating income and income from extraordinary items to arrive at net income for the period.

Source: ehow.com

Category: Forex

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