Businesses generally prepare quarterly, half-yearly, or annual P&L statements to track their financial performance and make cost-effective decisions for the future. Business owners, accountants, and other finance authorities review a business’s P&L statement to assess its profitability and overall financial health.<\/p>\n
Struggling to generate accurate P&L statements?<\/strong><\/p>\n Utilize Moon Invoice, where you can view automated and error-free P&L summaries in seconds. Make smart business decisions with zero manual hassle.<\/p>\n Upgrade to Moon Invoice Now<\/a><\/p>\n<\/div>\n There are multiple types of profit & loss statements, and each one works differently. Based on your business size and reporting needs, you need to choose the appropriate type of profit and loss statement.<\/p>\n Below are the most common types of profit and loss statements:<\/p>\n If you are searching for a profit and loss statement for small business, this could be your answer. A single-step P&L statement is the simplest type of P&L statement. Here, the net profit is calculated by subtracting total expenses from the total revenue. In single-step P&L statements, the entire calculation is done once and is hence called a single-step profit loss statement.<\/p>\n Small businesses, startups, and sole proprietors mostly use this profit & loss statement because it is easy to prepare and understand.<\/p>\n A multi-step P&L statement is a more detailed version of the normal profit and loss statement. Unlike single-step, here the calculation doesn’t complete in one step. In multi-step, the operating revenue and expenses are separated from non-operating items to have more clarity on the business’s actual profitability.<\/p>\n Mostly medium and large-scale businesses use this format to track profit margins and analyze operational efficiency in a better way.<\/p>\n A condensed P&L statement can also be called a hybrid of multi-step and single-step statements. It showcases the most important financial items and groups similar financial items together. It doesn’t include every single transaction or expense except the important ones.<\/p>\n Many businesses use condensed profit loss statements for investor presentations, quick financial reviews, and internal management reporting.<\/p>\n A common-sized P&L statement is another type of profit and loss statement in which each line item is expressed as a percentage of total revenue rather than shown as absolute amounts. As a result, businesses can compare their financial performance across different periods rather than a single period. Businesses can also compare their financial performance against competitors regardless of company size.<\/p>\n Common-sized P&L statements are generally used for financial analysis, identifying cost trends, and comparing business performance over time.<\/p>\n The following is a P&L statement example used in businesses: To understand how a profit and loss statement works, we first need to determine what type of P&L it is. For example, a simple P&L statement provides a basic summary of financial data for an overview of profits and losses. But, a more detailed P&L statement may include total sales and expenses data, gross profit, COGS, and other related terms.<\/p>\n Also, it is key to note that some P&L statements showcase comparative financials from previous periods, such as year-over-year, so the accounting team can compare changes in profits and losses over time.<\/p>\n Here’s how they work:<\/p>\n Revenue is generally called the “top line” as it appears at the top of the profit & loss statement. It serves as the starting point for all calculations.<\/p>\n Revenue includes the total income earned from business operations, such as product sales, services, subscriptions, and other primary activities. To prepare a P&L statement for your business, firstly, you need to find out the total revenue, for which you can use the following formula:<\/p>\n Once revenue is recorded, businesses calculate the cost of goods sold (COGS) for that specific period. COGS is the direct cost of producing goods or delivering services, including direct labor, manufacturing costs, etc. To determine the COGS of your business, you can use the formula:<\/p>\n Next, businesses record gross profit, which shows how efficiently they produce and sell their products or services before deducting operational expenses.<\/p>\n A higher gross profit means the company has a stronger profit margin and is producing goods and services more efficiently.<\/p>\n Here\u2019s how you can find the gross profit of your business:<\/p>\n After recording gross profit, businesses look to subtract operating expenses<\/a> from it. Operating expenses are the daily business expenses that play a major role in running the business.<\/p>\n Operating expenses include:<\/strong><\/p>\n These costs are not directly linked to manufacturing products, but are necessary to keep business operations stable.<\/p>\n Once operating expenses are deducted, the remaining amount is termed operating income<\/a> or operating profit. It is the profit generated from core business operations before deducting taxes, interest, or non-operating activities.<\/p>\n The formula to calculate operating income is:<\/p>\n After recording operating income, businesses account for non-operating items. These items are clearly separated from normal business operations but still play a big role in calculating the company’s overall profitability.<\/p>\n Non-operating items include:<\/strong><\/p>\n After calculating everything, lastly comes the net income or net loss. It is the amount that represents the company’s final earnings or losses after deducting expenses, taxes, and additional costs.<\/p>\n The formula to calculate net income (or net loss) is:<\/p>\n If the amount is positive, it is a profit and is termed “net income”. If the amount is negative, it is a loss and is termed a “net loss”.<\/p>\n Creating a P&L statement manually could be a tedious task, especially for businesses with high transaction volumes. Manual P&L statements could lead to calculation errors and time-consuming processes. On the other hand, if you use accounting software, you can create it in just a few steps.<\/p>\n Here are the steps to create profit and loss statement using accounting software.<\/p>\n Do your research and find the best accounting software that fits your needs. Generally, accounting software comes with many other reporting features apart from P&L reports, such as the ability to create quarterly reports, summary reports, and profit by product reports that reduce your accounts team’s workload.<\/p>\n Once you utilize accounting software in your business workflow, start managing finances with it. The software will record every invoice, expense, estimate, credit note, and debit note your business deals with in an organized manner. Later, you can check your business’s P&L statement by heading to the “reports” section and clicking “profit and loss report”.<\/p>\n The P&L statement lists sales, returns, net income, purchases, gross profit, operating expenses, non-operating expenses<\/a>, and net profit. You need to review each item to determine whether your business has made a profit or incurred a loss. Each figure in a P&L statement carries significant value, so you need to review it thoroughly and ensure there are no calculation errors.<\/p>\n Small business owners or startups are often confused by the many figures on the P&L statement. The correct way to read a profit and loss statement is by reviewing the company’s total revenue first. Next, you should check the cost of goods sold (COGS), operating expenses, and finally the net profit or loss.<\/p>\n By reviewing the P&L statement in this way, you will easily understand profits made by the company, money spent by the company, and whether operations remained profitable for that particular period.<\/p>\n The profit and loss statement helps evaluate the company’s financial health by showing detailed figures of revenue and expenses. When profit & loss statements are analyzed alongside other financial statements, such as balance sheets and cash flow<\/a> statements, you will gain a clear understanding of operational efficiency and long-term financial stability.<\/p>\nTypes of profit and loss statements<\/h2>\n
1. Single-step profit & loss statement<\/h3>\n
2. Multi-step profit & loss statement<\/h3>\n
3. Condensed profit & loss statement<\/h3>\n
4. Common-sized profit & loss statement<\/h3>\n
Profit and loss statement example<\/h2>\n
\n![\"Profit](\"https:\/\/cdn.mooninvoice.com\/mi-live\/blog\/wp-content\/uploads\/2023\/02\/03120750\/image-2026-06-03T173356.002.png\")
<\/p>\nHow do profit and loss statements work?<\/h2>\n
1. Revenue<\/h3>\n
2. Cost of Goods Sold (COGS)<\/h3>\n
3. Gross profit<\/h3>\n
4. Operating expenses<\/h3>\n
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5. Operating income<\/h3>\n
6. Non-operating items<\/h3>\n
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7. Net income or net loss<\/h3>\n
How to make a profit and loss statement?<\/h2>\n
Step 1: Choose your accounting software<\/h3>\n
Step 2: Prepare reports with auto-calculation<\/h3>\n
Step 3: Review thoroughly<\/h3>\n
How to read a profit and loss statement?<\/h2>\n