Profit and Loss Statements Basics

Understand the basic information presented in a business profit and loss statement
By Casey Holley There are numerous reasons why your business needs profit and loss statements. If you are applying for a business loan, looking for investors or trying to plan ahead for a holiday season, a profit and loss statement is a useful tool.
 

Before trying to compile your P&L statement or trying to decipher one that was compiled for you, understanding profit and loss statements basics is necessary. Consider the following ideas to help you learn the basics:

1. Understand how to decipher the information presented in the P&L statement.

2. Learn profit and loss statement key terms.

3. Find out how to create your own profit and loss statement.

Know how to interpret profit and loss statements

At first glance, information presented in a profit and loss statement may seem impossible to decipher. Learning how to read the statement can help you know how to prepare your own profit and loss statement. You have to know, for example, that profit and loss statements show hard core financial information about a company can be used to show sales and spending patterns for the company. This can give business owners and management information to base scheduling and inventory on.
Try: AccessMyLibrary offers information on how to read and understand a profit and loss statement. This website also offers easy to understand definitions about the terminology used on the statement. Money Instructor offers online lessons and worksheets to help you understand the purpose of a profit and loss sheet and how to read the information presented on the sheet.

Understand basic profit and loss statement terms

Some profit and loss statement terms, such as income and expense, are easy to understand. Other terms, such as balance sheet and fundamental analysis, are more complex. Knowing what these terms mean and how to apply them to your profit and loss statement forms will make compiling the information much easier for you.
Try: Ohio State University offers an explanation of common P&L statement terms. Many of the terms have instructions on the proper way to figure the amount that corresponds with the term. Investopedia offers easy to understand definitions of common financial terms, including terms associated with profit and loss statements.

Learn how to create your business profit and loss sheet

Creating your profit and loss statement can be either very simple or very difficult. Using a profit and loss statement template may make your work a little easier. This is especially true if you have only basic financial information to include in the statement.
Try: Virtual Advisor offers a profit loss statement template that includes detailed instructions. You can enter information directly into the template on the website and calculate totals for your business profit and loss statement. eSmallOffice offers detailed instructions on how to prepare profit and loss statements. This website offers a sample profit and loss statement sample to give you an idea of what your statement should look like.

• Have a financial advisor or accountant go over your P&L statement before submitting it for review by a loan company or investors. One small mistake on the sheet could cost you the money you are seeking.