Profit and Loss (P&L) Statements

Published on July 12, 2017

P&L Statements

A Profit and Loss (P&L) statement measures a company’s sales and expenses during a specified period of time. The function of a P&L statement is to total all sources of income and subtract all expenses related to the income. It shows a company’s financial health during a given time period.

Why you should Prepare a P&L Statement

You should prepare a P&L statement monthly or quarterly or anytime you want to see where your business expenses are going, and how much money you are actually keeping.  You will also need to prepare an annual P&L for tax preparation.

How a P&L Statement is Calculated

The P&L statement uses data from your business and three simple calculations to show you the net profit (or loss) of your business.  Below is a basic formula used to create a P&L statement:

  • Total Sales = All Sales for the period (does not include sales tax)
  • Cost of Goods Sold (COGS) = Labor, Materials & Processing Costs
  • Total Sales – COGS = Gross Profit
  • Gross Profit – All Other Costs = Net Income
  • Net Income = Earnings Before Income Taxes (EBIT)
  • EBIT – Income Taxes = Your Spendable Earnings