A profit and loss statement (income statement) is among the most effective tools for analyzing the profitability of your business. A P&L statement typically measures a business’ revenue and expenses monthly, quarterly, or yearly. Essentially, a P&L statement uses the business income, the operating costs, and the total expenses to calculate the profit or loss incurred by a business in a given duration. More to aiding in the managing and tracking of a company’s financials, the P&L statement helps in identifying profits, losses and break-even points for a business thus putting the business in a better position to identify and address arising problems in a timely manner.
When effectively utilized, the P&L is an instrumental financial management reporting tool that highlights high level expertise or lack thereof the handling of a business and provides insights for the growth of your business.
This checklist will provide a step-by-step guide for the compilation of a P&L statement for your business.
Step 1 – Compiling the Gross Profit
1 Are your sources of revenue recorded?
2 Is there a record of your cost of goods sold (COGS)?
3 Have you included the cost of labor, raw materials, shipping, factory costs and delivery in your COGS?
4 What is your total revenue?
5 Have you calculated your gross profit?
Step 2 – Compiling the Net Income
6 Have you listed the business’ operating expenses?
7 Do the operating expenses cover salaries, ads, research, consultations, R&D, outsourcing, and asset depreciations?
8 Are the selling expenses separated from the general and administrative expenses?
9 What is your profit before taxes?
10 Have you deducted allowances for both state and federal taxes from the income tax?
11 Have you calculated your net income?
Step 3 – Compiling your Retained Earnings (RE)
12 What are the previous year’s RE?
13 Have added the total of net income/loss to the RE?
Step 4 – Reviewing your P&L Statement
14 Have you evaluated the accuracy of your P&L statement?
15 Are occurring discrepancies analyzed and reconciled?
16 Have you leveraged accounting software and other tools to create your P&L?
17 Are you leveraging metrics such as net profit margin and ROA to analyze your P&L?
18 Does your P&L form a basis for the development of a cash flow projection?
Notes:
- Recording your sources of revenue is important in detailing and breaking down the sources of your business’ income
- Make regular print outs of your P&L to track progress
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