Checklist: Creating And Using A Profit And Loss Statement

A Profit and Loss statement (P&L) provides a financial snapshot of a business over a specific period of time. The statement includes business income, operating costs, and expenses used to calculate total business profit or loss for a specified financial period.

P&L statements can help you manage your business better and keep your financials on track. A monthly statement can be used to help monitor the performance of your business against stated projections- reflecting a profit, loss, or break even situation. If problems are identified within the statement you will have a chance to correct before anything gets out of hand.

Use the checklist below to create and use a P&L statement:

P&L Statement Usage

The manner in which you use your P&L statement will affect the level of detail required to create the statement. You may choose to monitor only a high level overview of the business, or you may want to break down data by department or product line in order to pinpoint income and expenditure more precisely.

Usage of P&L Statement

Establish Recording Systems

Effective systems and procedures need to be set up in order to record the necessary information for inclusion in your P&L statement.

Recording systems established

TIP: Using an accounting software solution, like Sage 50 Accounting, can easily automate financial recording procedures.

Information Required for P&L Statement

The following data needs to be gathered to create a P&L statement:

All sales invoiced for the period. Sales are based on the date of the sale or invoice date, and not on the actual date on which the customer pays.
The value of any stock held. The value should reflect the opening and closing balances. The closing balance may be higher or lower than the opening balance, depending on the sales and purchasing activities during the period.
All purchases, except capital items (e.g. machinery or furniture)

Information gathered for P&L preparation

Check Accuracy

Ensure your figures are correct. Do not include purchases of items that are classified as capital expenditures, such as company vehicles or equipment as they are not directly related to day-to-day operations. You can, however, include an amount to cover the depreciation of the capital items.

All figures checked for accuracy

Preparing the P&L Statement

Once you have gathered all the information required, you are ready to produce your P&L statement. Look online for template examples or if you use accounting software, a P&L statement template should already be available.

Prepare P&L statement

Frequency of P&L Statements

To keep tight control on your business financials, a new P&L statement should be prepared at the end of each month. Some small businesses opt to prepare statements more infrequently, for example, quarterly or half-yearly.

Monthly P&L statement preparation

Investigate Discrepancies

Check for any discrepancies revealed by your P&L statement. Careful monitoring will enable you to identify issues that can impact financial results.

Discrepancies investigated

This material is for general information purposes only. As market conditions are always subject to change, the information contained herein shall not be interpreted as any commitment from Sage or as financial or legal advice. Please consult with a qualified financial or legal professional if you have questions about your specific circumstances. Sage makes no warranties, expressed or implied, in this material.