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Here's how to work out your profit and loss statement in three easy steps

by , 16 May 2014
Your profit and loss statement is a book of many names. Accounts also call it a 'statement of profit and loss', 'income statement' and 'income and expense statement'. But regardless of what you call it, you still have to complete it the same way.

As the names suggest, this book is all about keeping track of what you're company is earning and what it's spending. The final result is working out what your profit is after all of your expenses.

Use these three quick and simple steps to calculate it correctly.

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Three steps to calculating your profit and loss statement correctly every time

When it comes to you profit and loss statement, you need to remember is three things: Income, expenses and profit. Here's why:
Income: This is any money that comes into your company. Even if this money isn't expected income, it should be included as income for that month or period. 
Remember to be 100% exact and record all income right down to the last cent.
Expenses:  These expenses are anything and everything you spend in running your business. Whether it's what you spent making your product to your electricity bill, you need to record all of it. 
Again you need to be exact. Leaving off a few cents at the end of every amount could appear as a huge loss when you reconcile your income statement to your bank statement.
Don't forget to include your company tax as an expense as this is part of the cost of running your business. 
Profit: Once you've worked out your total income and subtracted your total expenses you'll have your profit or net income. 
In chapter M02 on calculating gross profit, the Practical Accountancy Loose Leaf suggests that the best way to ensure you always see a gross profit here is by implementing a 'mark-up policy'.
So how often should you calculate your profit and loss statement?
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When to calculate your profit and loss statement

Investopedia says that you'll normally look at a set period of time in this statement such as every fiscal quarter or year.
But it's important to document your income and expenses constantly. Otherwise, you may forget to include something.
So that's it. Three incredibly simple steps to working out your profit and loss statement.

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