How to prepare Trading and Profit & Loss Account in excel spread sheet (Samir)
How to Prepare a Profit and Loss Statement
A profit and loss statement provides information about your business's past activities, and is an essential document that must be created as part of your financial reporting. You may need to create one if, for example, you're applying for a small business loan. While you can find templates to use to prepare a profit and loss statement, it's also a fairly simple document that you can create yourself using your business's basic financial records.
Choose the time period you want your report to cover.You may want to create a profit and loss statement to cover only a few months, or to cover an entire year of operations. If you're preparing the statement for a third party, they may dictate the period of time the statement should cover.
- A profit and loss statement typically should cover at least one quarter to convey any significant degree of helpful information.
- At the same time, a profit and loss statement that covers more than a 12-month period typically will have too much data to be particularly useful.
Adjust your data accordingly.A profit and loss statement that covers only a brief period of time, such as three months or one quarter, can have a lot more detail than one that covers an entire year of operations.
- The longer the period of time you cover, the less detailed your profit and loss statement should be. For example, if you're preparing a profit and loss statement covering the last six months, you may want to include income and expense totals for each month.
- However, if your profit and loss statement covers an entire year, it may be more helpful to break that year down into quarters, rather than individual months.
Gather documentation of sales figures and other revenue.To prepare your profit and loss statement, you'll need raw figures for all income your business has earned during the period the statement will cover, including any gains from assets.
- If you don't have a bookkeeper or use accounting software, gathering these documents may present a challenge.
- However, keep in mind that if you haven't recorded income, you'll not only have trouble creating this statement, you'll also have problems when you're preparing your taxes.
- Divide your income into general categories so you can determine how much money your business is bringing in for each avenue of your operations.
- You also want to keep non-operating income, such as capital gains, separate from your operating income.
- Financial records are important, so if you run across any gaps in your record-keeping while you're gathering income information to complete your statement, make a note to fix the problem as soon as possible.
Total your income over the chosen period.Typically you'll want to include totals for smaller periods of time, such as months or quarters, in addition to the ultimate total income for the entirety of the period covered by the statement.
- You'll want totals in each category as well as the total of all income over the given period and each division of that period.
- For example, if you have income in three categories and your profit and loss statement is covering three months, you'll want a total for income in each category in each month, as well as totals for each category of income over the entire quarter.
- Then, you'll want to total income in each category for the entire quarter, along with your biggest total for income over the entire quarter.
Totaling Operating Expenses
Gather information about your expenses.Having meticulous business records is perhaps the most important key to ensuring that you have an accurate profit and loss statement. You can't account for expenses if you don't have them in your records.
- You'll need records for expenses your business has incurred during the time period you've chosen for the profit and loss statement to cover.
- While you probably will have no trouble accounting for major expenses such as lease payments or utilities, don't forget incidental expenses such as small supply purchases or temporary contract labor.
- If you purchase raw materials to create another product that you sell, those raw materials also are part of your expenses.
- Likewise, inventory for retail stores also should be included in your expenses for the purposes of a profit and loss statement.
Create general categories for operating expenses.How you categorize your operating expenses will depend to some extent on whether your profit and loss statement will be used internally or is being prepared for a third party, such as a potential lender.
- If you're preparing a profit and loss statement for a third party, you probably don't want them to have explicit details about your business and the expenses of your operation.
- For this reason, you typically want to use general categories such as "advertising" or "office expenses."
- On the other hand, if you're creating a profit and loss statement for internal analysis, you may want to itemize your expenses to a greater extent.
- For example, if you were experimenting with different methods of advertising and marketing, and you want to analyze how your business's income changed under each method, you might separate those out, having separate categories for internet advertising and television advertising.
Include non-operating expenses.Non-operating expenses essentially are any expenses incurred by your business that don't directly relate to the operation of your business, such as interest on existing loans.
- Non-operating expenses also include any legal or accounting fees and bank service charges.
- You can categorize these separately, or you can simply list them as "non-operating expenses" and provide the total for each period.
List any losses your business has incurred.Losses typically include any damages your business has paid out as a result of a lawsuit, or capital losses from the sale of company assets, which don't fit under any expense category.
- Unlike your expenses, your losses should be itemized specifically. In most cases, these amounts are unlikely to recur, so it's important that they're accounted for specifically.
Finding Net Income
Decide whether to use a template or create your own spreadsheet.You can download a template online to use for your profit and loss statement, or use one that comes with your spreadsheet application.
- However, creating your own spreadsheet can enable you to customize the information to suit your purposes in a more precise way.
- If you're preparing a profit and loss statement for a third party, such as a lender, they may want the information arranged in a certain way, or require that certain data be included.
- If you know the information you need to include, your spreadsheet should fit your data – not the other way around.
Create your rows and columns.If you've decided to create your own spreadsheet, organize it with your income and expense entries as the rows, and your time periods as the columns. Your data will go in the corresponding cells.
- Your organization should make sense and be easy to follow. Typically, your income entries will cover the top lines of your spreadsheet, while your expenses will appear in the lines below.
- This flows naturally, since you will be subtracting the expenses from your income to find your net profit.
- Your first column will identify the types of income and expenses that appear in each cell of the table, and each column that follows will indicate the time period for which those numbers apply.
- For example, if your profit and loss statement covers a single quarter, your spreadsheet would have at least four columns – one for labels, and the other three for each month included in the quarter.
- You may also want to have another column to the far right for totals.
Decide which method you want to use to list your entries.There are two methods you can use in a profit and loss statement. The simpler of the two is the single-step method, through which you simply subtract all expenses and losses from all revenue and gains.
- Using the multiple-part method, you'll separate your operating income and expenses from other income and expenses. Your sales minus your selling and administrative expenses is your net operating profit.
- Adding your other income minus other expenses to your net operating profit gives you your net profit before taxes.
- The multiple-part method makes more sense if you have an inventory-based business such as a retail store.
- If you're preparing the profit and loss statement for a third party, they may dictate the method you should use and the figures you'll need. For example, many banks require profit and loss statements using the multiple-part method if you're applying for a small business loan.
Enter the applicable values.Once your spreadsheet is set up, you're ready to enter the figures you found for your income and expenses down each category during the time period. This also is a good time to double-check your math.
- You can set up your spreadsheet to total particular cells as you go, so your totals for each category of income or expense is automatically populated.
- Once you've entered all your numbers, you'll need to total your income for the entire period, and your expenses for the entire period.
- If you're using the multiple-part method, you'll need separate totals for operating and non-operating income, as well as for operating and non-operating expenses.
Subtract your expenses from your revenue.If you're using the single-step method, once you've entered all the numbers you have some simple math to find your business's net profit. The multiple-step math is just as simple, but involves finding operating profit first, then net profit before taxes.
- While the goal of a profit and loss statement, also called an income statement, is to find your net profit, this isn't the only figure of importance in the document as a whole.
- Your profit and loss statement provides a snapshot of the money coming in and out of your business during the time period it covers. You can use it to analyze your business's financial health.
- Seeing the raw numbers in spreadsheet format can help you identify areas for improvement, or evaluate experiments you made with different methods of operations.
- There are many low-cost options to acquire basic accounting software for your business. Most of these services will automatically generate a profit and loss statement for you at the click of a button.
Video: Trading and Profit and Loss Account and Balance Sheet with Adjustments explained in easy way
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