The Profit and Loss Account is a simple and ready-to-use Excel Template that enables you to summarize the revenues, costs, and expenses that a company incurs a specified period. Usually, companies prepare this statement quarterly and yearly and sometimes even monthly.
What is a Profit And Loss Account?
Profit and Loss Account is a financial statement prepared before preparing the Final Accounting Statement that is the Balance Sheet. It is also known as P&L account or Income Statement.
It provides a complete summary of revenue generated and expenses incurred by a company, which in turns gives an insight into a company’s financial whether it is making profits or a loss.
In simple terms, the profit and loss statement provides a detailed look into the financial health of a company over a period of time.
2 Methods To Prepare Profit And Loss Account
You can prepare the Profit and Loss Account or Income Statement by two methods:
- Single Step Statement
- Multi-Step Statement.
Generally, small companies prepare the Income Statement using the Single Step statement. It is a simple method and widely used.
In this method, you just take the total amount of Revenues and subtract them from the total expenses to find the gain or loss made by any business.
Big volume companies use a Multi-Step method. To prepare this statement, you need to follow the following steps:
- Calculate gross profit.
- Make a total of Operating expenses.
- Deduct them from the gross profit.
- You will get the income from operating activities.
- Deduct Expenses from Income from operations. This is your Earnings Before Investments & Taxes.
- The final step is to deduct taxes.
- This gives you the net income/loss for the period.
Profit and Loss Account Excel Template
We have created an easy-to-use Profit and Loss Account Excel Template by grouping all revenue and expenses with predefined formulas. This template can be useful for businesses of all sizes.
Let’s discuss in detail about the template.
Content of Profit and Loss Account Excel Template
The top section consists heading of the sheet and the period for which it is prepared.
Furthermore, this template consists of 3 sections:
- Summary & Taxes
Under the Revenue section, insert all kinds of revenues generated by the company. These revenues include Sales Revenue, Service Revenue, Interest Revenue, etc.
Note: Please enter the net sales revenue amount after deducting sales return and other discounts offered during sales if any.
There are two columns for the amount. One is for the current year and the other for the previous year. This helps you to do a comparative study. It also helps to identify the reasons of higher expenses and fewer profits or even losses.
If the comparison with the past year is not required you can leave it blank. Please see the screenshot below:
Insert the amount in the respective cells against the type of revenue. The sum of all revenues or income generated from different sources is made using the SUM Function.
The formula applied here is =SUM(E8: E12)
Under the Expenses section, enter all kinds of expenses that your company incurs. These include expenses like advertising, Cost of goods sold, depreciation, utilities, employee expenses, rent, etc.
See the image below:
Similar to the revenue section, using SUM function the total of expenses this line shows the total of both the years.
The formula applied here is =SUM(E16: E35)
3. Summary & Taxes
This section consists of fo two things: Gross Profit Before Taxes and the Income-tax.
Gross Profit = Total Revenues – Total Expenses
The formula applied here is =E13-E36.
Every company pays income tax. Insert the actual amount of Income tax expense. The formula applied here is =E38*10%. You can change the percentage according to your requirement.
Finally, Net Income is calculated using the following formula:
Gross income – taxes = Net Income. The formula applied here is =E38-E39.
If revenues are higher than the expenses, it is a profit. But when revenue is lower than the expenses then there is a loss. The statement will reflect the amount of loss in the negative.
Purpose of preparing Profit and Loss Account
- Provides a brief understanding of the financial health of a company.
- Helps to project revenues.
- Forecast Expenditures.
- Compare actual performance with projection.
- Maintain provision and reserves depending on the financial health of the company.
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