Most people have to document their personal income and expenses. Businesses have to do the same thing. This is called a profit and loss statement. When this is done correctly, all money that went out and came into the company should be clear. Here’s make a profit and loss statement.
Instructions
1. Gather records of all revenue. This will take a couple of different forms depending on the nature of the business. It may be receipts on services provided. It may also be the products or memberships fees. Don’t worry about calculating taxes at this point. The goal here is to document all proceeds.
2. Include cost of goods sold. In order to sell a product and gain revenue from it, a purchase of the product or items to create the product must occur. COGS must be documented in order to determine profit. A grocery store, for example, but products from various wholesale vendors and then sell those same products to customers. The cost of these goods depends on quantities, purchased, time of year, gas prices and many other variables. It’s clear that COGS could change the whole picture on a profit and loss statement from month to month.
3. Determine allowances and returns. When goods and services are sold at a sale price, an allowance is made for the difference between the regular price and the sales price. This allowance should be recorded for the month so that organizations can track the effectiveness of sales. When items are returned, the revenue must be subtracted from the total revenue for the month. Failure to track allowances and returns would paint a less than objective picture of monthly finances.
4. Add cost of goods sold with returns and allowances and subtract them from the revenue. This will give the gross profit for the business.
5. Calculate expenses. Any money spent for the purpose of operating the business would be expenses. This would include payroll, cleaning, office supplies and any number of other possible expenses.
6. Take the gross profit and subtract the expenses to get net income before taxes. Once all the taxes are determined subtract taxes from net income before taxes. This will give the net income. Hopefully, there will not be a net loss. Place these items in spreadsheet format and delineate debits from credits in whatever form desired.
