A profit and loss (P&L) statement is a report that details a company’s revenue and expenses over a period of time (usually a quarter or fiscal year). The profit & loss statement, also called the income statement, shows whether a company lost money or made a profit during the reporting period. 

Let’s explore what a P&L statement means for your business, why you need one, a profit and loss statement example, and three free templates you can use to create yours today in this article from Nav’s experts.

When Your Business Needs a Profit and Loss Statement

As a small business owner, you probably already have a number of responsibilities on your to-do list. Depending on your situation, you may have to manage taxes, apply for business credit cards or small business loans, monitor your business credit scores, and perhaps even oversee daily sales or operations. 

It’s understandable that you might feel worried about adding more duties to the ever-growing pile. But once you get used to filling out your income statement template, you’ll get faster at the process over time. Your accounting software may help you complete this task as well.

The good news is you don’t need a business accounting degree to learn how to use these statements. Your accounting software can often help you create a P&L, or your accountant can help as well.

Pro forma P&L

The first time your business should create a P&L statement is right at the beginning. You probably won’t have any actual income or expenses to report at that point. Still, you can create a pro forma P&L to project these figures for the future. Pro forma income statements may be helpful when you apply for business loans or other types of financing.  

Periodic P&L

All established businesses should prepare a P&L statement from time to time. Ideally, your company should create a new report at least once a quarter. Monthly income statements are even better. 

A periodic P&L statement can help you manage your business finances. You can compare your current statement to previous ones and see if your net income is improving or declining. A P&L statement can also help you when it’s time to prepare your business tax return. 

Other types of P&L/income statements

Other types of P&L statements include:

• Single-step P&L statements are the simplest format for a P&L statement with subtotals for revenue and expenses. 
• Multi-step P&L statements further break down revenues and expenses into operating and non-operating revenues and expenses. 
• Comparative income statements compare different periods (such as quarterly or annual reporting periods).
• Common size analysis P&L statements present line items as a percentage of revenue.
• Profit & loss variance statements show the difference between amounts budgeted versus actual income or expenses.
• Contribution margin P&L statements show net profit by first deducting variable expenses from sales to determine the contribution margin, then subtracting fixed expenses. 
• Driver-based P&L statements are used to create forecasts, often for executive planning. 

What Information Goes on a P&L Statement? 

Before you prepare a statement of profit and loss, you’ll need to gather information about that money that flowed into and out of your business during the time period in question. Make sure your bookkeeping is up to date so you’re working with current information. If you already have a company cash flow statement, it may contain many of the details you need.

In addition to your statement of cash flows, you may also gather information from the following sources: 

Your business bank statements 

Search your bank statements for all sources of income deposited during the reporting period. Your company’s income categories may include:

• Sales revenue – Total sales earned when your company sells goods or services.
• Affiliate commissions – Commissions received when your business promotes or sells another company’s products or services.
• Rent and lease payments – Income earned from leasing equipment or property to others.
• Royalties – Money earned when you create a product, and someone else sells it on your business’ behalf.
• Non-operating income – May include interest earned on investments or savings.
• Gains – Profits made from the sales of the company’s assets, like equipment, property, etc.

Your accounting software

Next, assemble a list of the funds that flowed out of your business during the time period featured in the report. The transactions list in your accounting software or checkbook ledger should contain these details. Alternatively, you can review your bank statement for the data you need.

Group all expenses incurred into categories, such as:

• Operating costs (or administrative expenses) – Rent, salary, wages, marketing, insurance, legal fees, and other overhead costs.
• Costs of goods sold (COGS, or cost of sales) – Inventory, shipping, storage, raw materials, and other expenses involved in selling products.
• Depreciation and amortization – May apply to equipment, machinery, buildings, or other property your business owns.
• Taxes – Income tax paid.
• Interest paid on debt – Interest expenses incurred on business credit cards, small business loans, lines of credit, and other debt.

Cash receipts

Be sure to include cash transactions in your P&L as well — both income and expenses. Cash deposits should be detailed in your business checking account and your accounting software, if you recorded them previously. It’s also wise to save your receipts to make reporting cash expenses easier. 

Simple Profit and Loss Statement Example

The table below shows an example of a simple profit and loss statement.

Simple P&L Statement Example
Quarterly Income
Sales	$100,000
Royalties	$10,000
Non-Operating Income	$5,000
Total Quarterly Income	$115,000
Quarterly Expenses
Operating Expenses	$25,000
Cost of Goods Sold	$30,000
Taxes	$25,000
Depreciation	$5,000
Total Quarterly Expenses	$85,000
Net Income	$30,000

3 Excellent P&L Statement Templates You Can Download for Free

Rather than starting with a blank page, turn to a profit and loss statement template. These templates can provide the backbone of your business’s profit and loss statement. Most templates are in Excel and are fully editable to suit your business needs.

Here are some great options:

1. Nav: Get Nav’s profit and loss template here.
2. FreshBooks: Download FreshBooks’s free P&L template here.
3. Corporate Finance Institute: Get the free template from the Corporate Finance Institute here.

You can also reach out to an accounting professional to get advice on how to complete a profit and loss statement if you have questions.

How to Analyze a Profit and Loss Statement

A profit and loss statement can give you insight into a company’s profitability, but you need to know how to read it first. 

A one-step profit and loss statement is relatively straightforward. First, you’ll decide what you want the given period to be, which can be monthly, quarterly, or annually. Then you’ll subtract your total expenses from your business income (any business expenses) to find your net income. 

Once you have completed the calculations, a P&L statement can show you where you’re overspending or not grabbing onto opportunities to increase profits. It will allow you to look at changes that happen over time to see if there are up seasons you can plan ahead for, or if you’re growing. You can also compare your business to the competition to see if there’s a way to increase profits. Overall, you can become more efficient and effective at running your business using a P&L statement.

Profit and loss statements can be useful tools, but you need to understand how they work first. Don’t hesitate to contact an accounting professional with any questions.

Why You Need a P&L Statement

We’ve covered when your business needs a P&L statement and some basics about how to create a simple one. But why is a profit and loss statement useful for a business? Below are a few reasons why your business needs an income statement in the first place.

1. You can use a P&L statement to improve your bottom line. By periodically taking stock of your company’s income and expenses, you can get a better idea of how it’s performing financially. You may discover how to boost your net income, and ultimately business profits, by increasing revenue, cutting expenses, or some combination of the two.
2. Put your business in a better position to borrow. When you apply for business funding, lenders will often review your financial statements, including the P&L statement, as part of the application process. Of course, your business credit scores and reports are often among the key factors considered when you apply for a loan. Yet a P&L statement that shows your company is in the black can be a big plus.
3. A P&L statement might be required. Is your company publicly traded? If so, you’re likely required to file annual reports (and other reports) with the Securities and Exchange Commission (SEC). An income statement is part of the financial information your business must disclose in these reports.
4. P&L statements can help you prepare your taxes. Unless you’re an accountant or a big fan of numbers, you likely don’t enjoy preparing your business tax return. Many business owners don’t consider this particular obligation to be much fun. Yet if you prepare regular P&L statements, filling out your tax returns could be less painful. Through your P&L, you’ll already have access to much of the information you need. 

P&L Statement vs. Balance Sheet

A balance sheet and a P&L statement are both financial reports, but they provide different information to a business. As mentioned, a profit and loss statement shows a business’s profitability over a certain period of time. It can give insights into how to increase profits by boosting revenue or reducing expenses, or both.

On the other hand, a balance sheet looks at a business’s assets, liabilities, and shareholder equity (if applicable) at a specific time. Assets include accounts receivable, inventory, and cash, while liabilities are debt, overhead, and accounts payable. It shows how well the management is using the business’s resources and how it can be improved. Calculating the rates of return using your balance sheet for different products and services shows what’s giving you the most bang for your buck, and if there is anything you should cut.

Businesses use both of these financial statements in tandem. When used together, they give you an overall view of your business’s efficiency, consistency, changes you should make to your business plan, and the direction you should take as a business as a whole.

The Difference Between a P&L Statement and a Statement of Revenue

A statement of revenue and a P&L are the same financial report. There are actually four different terms used to describe the report that helps you calculate your company’s net income:

• Profit and loss statement
• P&L statement
• Statement of revenue
• Income statement

It can be easy to confuse these terms, but know that they refer to the same report. 

Is Profit And Loss Statement and Income Statement the Same?

Yes, you will often see the terms P&L and income statement used interchangeably. They are the same report and perform the same function, but they’re sometimes referred to using two different names.

Final Word: Profit and Loss Statements

Keeping track of your company’s financial performance is critical to its long-term success. That’s why a P&L statement can be such a valuable tool for a business owner to use. 

By creating regular profit and loss statements, you can track your company’s financial health over time. This knowledge can provide you with opportunities to either double down on smart business strategies that are working for you or make course corrections when needed. 

If the idea of creating regular P&L statements or other financial documents feels overwhelming, you don’t have to create these statements on your own. You can hire a professional accountant to help. Even if you’re comfortable creating your own financial reports, a professional accountant can save you time and free you up to focus on other areas of your business.