Profit and loss statements, also known as income statements, are one of the best financial reports for understanding where your business stands financially.
Here, our accounting advisors in NSW highlight 8 steps for creating an efficient profit and loss statement:
1. Calculate revenue
Calculating all the revenue your business has generated is the first step for creating a profit and loss statement. You can get current account balances from your general ledgers like current accounts receivable and cash.
2. Calculate the cost of goods sold
This is an integral component of any profit and loss statement. If you’re selling computers, you’ll have to include the cost of purchasing the computers from the manufacturer.
If you’re manufacturing the computers, you’ll have to factor in the supplies and materials required to make them. If you’re providing services, you must include the cost of your or your employees’ time who offered the service.
3. Calculate gross profit
Gross profit is the profit your business has earned from selling your products and/or services. Determine gross profit using the following formula:
Gross Profit/Loss = Revenue – Cost of Goods Sold
4. Calculate operating expenses
Calculate all of your operating expenses. These include postage, utilities, equipment, payroll, travel, and rent.
5. Calculate operating profit
Use the following formula to determine your operating profit:
Operating Profit/Loss = Gross Profit – Operating Expenses
6. Add additional income to your operating profit
If you didn’t include any additional income in your revenue totals yet, like dividends from investments or interest income, you’ll want to include them here. Once you’re done, you’ll get EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
Use the following formula to determine your EBITDA:
EBITDA = Operating Profit + (Dividends Earned + Interest Income)
7. Calculate amortization, depreciation, taxes, and interest
The next step is to calculate any amortization expenses, depreciation, taxes due, and interest payments.
8. Calculate net profit
Get net profit by subtracting amortization expenses, depreciation, taxes, and interest from EBITDA. Use the following formula to do it:
Net Profit/Loss = EBITDA – (Depreciation + Taxes + Interest)
A profit and loss statement offers businesses with a view of income and expenses. Here, our accounting advisors in NSW highlight 8 steps for a profit and loss statement!
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