A profit and loss statement, or P&L, is a document that measures and reports the income and expenses of a business in a specific time period. It’s also called an income statement or the statement of operations.
P&L details a business’ capability of creating a profit by cutting costs or driving revenue, or a mix of both. The statement goes over revenue and expenses, including net sales, the cost of goods sold, gross margin, selling and administrative expenses, and the overall profit.
Why Is a P&L Statement Important?
There are plenty of reasons financial statements, along with P&L, are important. Here’s why you should be preparing them:
To Make Wiser Decisions
A P&L statement will let you look back and review how well your company has done over some time. With the results in front of you, you can then make better, more competent financial decisions as you’ll now know about how well your business is doing in terms of expenses and
If you’re not incurred losses, you can invest money in your business more surely.
A Proof of Your Business' Success
With a profit and loss statement, you can show a chronological record of how your business has fared over time; this puts you at an advantage around potential investors or buyers and may even work as a measure of trust by any new clients that you may have.
Helps You File Taxes
A regularly updated P&L statement will help you sort out all the information needed for filing business taxes when the day arrives.
How To Prepare a P&L Statement?
Keep Spotless Records
Your records should be clean; you need to have a clear-cut record of the money used in all the operations. Try to use ERP software like AltheaSuite to automate all your processes and have in-depth records of all your finances.
Select the Time
Next, you need to determine which period you will be looking at. This will help you determine the expenses later on.
Find Your Revenue
Understand the total amount of money your business has taken in; it will come from all the sales that have happened.
Find Your Expenses
Now, every little thing you’ve spent money on needs to be checked. You may have to consider returns and refunds as well.
Find Your Profit
To find a profit, deduct revenue from expenses. To avoid human errors, use software that’ll help make the math easier.
AltheaSuite — The One-Solution ERP Software
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