How to prepare your first P&L statement

A profit and loss statement is probably the most important financial statement that your business needs. A P&L is a measure of your company’s sales and expenses during a specific period of time which could be a month, a quarter, or a year.

A P&L is a statement showing the revenue or “money in” and expenses or money out” of your business. It’s required by the IRS that every business prepares a profit and loss statement to assess the taxes on their profits. Keeping it up to date quarterly or monthly is ideal especially for new businesses.  

There are two basic methods used when constructing a profit and loss statement depending on the statement’s level of detail:

  • Simple or single step
  • Complex or multi-step

Single step statements usually suffice for the majority of small businesses. Total the revenues, subtract expenses, and the result is your bottom line. Multi-step P&L’s involve more steps:

  • Deduct operating expenses from your revenue to get your operating income
  • Add your operating incomes to the net of not-operating revenues, non-operating expenses, and investment gains and losses to get your pre-tax income
  • Deduct income taxes to arrive at your net income.

What information to include

When preparing your first P&L statement, set up a template and start inputting the numbers. The majority of the information is going to come from your first-year monthly budget and from estimated calculations on depreciation provided by your tax advisor:

  • A listing of all transactions in your business checking account and all purchases made with the business credit cards
  • Include any petty cash transactions or other cash transactions for which you have the receipts
  • For your income, list all your sources – checks, credit card payments, etc.
  • Provide information on any reductions to sale, such as discounts or returns

With a new business, you will create a “pro forma P&L” statement because you do not have enough information to prepare an actual statement; in other words, you have to estimate. This type of statement is generally prepared monthly during the first year in business.

Your accountant will thank you

While there are multiple online templates that you can use when setting up a P&L statement for your business, you may find that it time-consuming, not to mention overwhelming, especially if you’re just starting out in business. Enlisting the services of a qualified CPA to prepare your P&L statements and/or to provide advice will save you time and money in the short and long-term.

Your CPA will need the following information to prepare your statment:

  • Net sales
  • Cost of goods sold
  • Selling and administrative expenses
  • Other income and other expenses

At GYL CPAs and Advisors, we provide accounting services for businesses as well as services to help you with your personal finances. Contact us today to schedule a free consultation.