Business life is heavily influenced by maintaining the delicate balance of profit and loss. Both are inseparable like bread and butter, or Rick and Morty, if it had a human face. Profit and loss are like puppet masters to business people, existing as the invisible hands that move trade and commerce—the economy in general. Yet, despite the inseparability of these two, profit and loss are two contradictions that always occupy businessmen’s minds. And even perhaps, the air and water that defines their existence. In summary, profit and loss are naturally occurring facts of every business people’s life.
What Is a Profit and Loss Statement Template Form?
Like most facts in this plane of existence, profit and loss is absolutely quantifiable. It means that both of them can be measured within our scope and limitations of human understanding. And to be able to measure profit and loss, we must follow the equation of subtracting income from its expenses. Equally, measuring profit and loss should be documented in writing as well. These are written in a document called a profit and loss statement. A profit and loss statement is a financial statement that enumerates your income and expenses within a period. This statement is prepared during the opening of the accounting books known as the accounting period. The profit and loss statement then reflects how your business is doing within a period, thus, determine a business’s longevity, or, the bitter truth of its rise and fall.
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What Is Profit and Loss?
Profit and loss are two things that dictate everything that you do as a businessman, and, is deeply embedded in every fiber of your being as well. Profit and loss are like a roller coaster ride where a business periodically experiences a momentous rise and fall. At the same time, profit and loss are seated on the opposite ends of a delicate balance of a scale. It may also be considered as the seesaw of good and evil, as well. Overall, this is a business’s periodic, yet perpetual mood swing that entrepreneurs need to understand deeply.
Profit and loss are described as a compounded list of your business’s income and expenses. These opposite fraternal twins manifest themselves in a profit and loss statement. Both are an integral part of every business, where each of them affects it in different and opposite ways.
Profit, in accounting, is described as the sum of income and revenues earned by a business. These are derived from several activities, such as sales and accounts receivables. Profits are also considered a measure of a business’s success from which their owner derived their happiness.
Losses, in business, are the amount that are deducted from the income earned by a business. These amounts are expenses and debts incurred within a period. Losses are the ones that businesses avoid or minimize, as much as possible as it negatively affects a business’s overall health.
Profit and loss, as mentioned in the previous section, are quantifiable and can be measured within our means. To compute and derive profit and loss, one must use the following equation, Profit = Revenues – Expenses. The equation is not always what it suggests, Profit. It can also mean the other way around if your expenses exceed the revenue amount earned.
How to Prepare a Profit and Loss Statement
Profit and loss statements are documents where profit and loss are reflected upon. It may sound “business-ey” that you, as an average joe, can’t relate and make on your own. Believe it or not, profit and loss statements can be applied by small businesses as well. Whether you’re a girl scout selling cookies for your next merit badge or an old housewife engaged in online “buy and sell” business, preparing a profit and loss statement will help you accomplish those. And, here are the steps on how to prepare it.
Step 1. Collect all Ledgers on Different Accounts
Firstly, collect all the ledgers on different accounts that you have in your files. Each of your ledger accounts contains the amounts or figures that you’ll need in preparing a profit and loss statement. If possible, segregate and classify each of them into assets or liabilities.
Step 2. List All the Items Found in the Ledgers
Next, list every amount found in each ledger accounts on a clean piece of paper. On listing those amounts, divide the list into two columns with the words assets and liabilities written above each of them. Then, list each of the items according to whether they’re assets or liabilities. A bit of a hint, earnings should be listed as assets and expenses as liabilities.
Step 3. Download a Profit and Loss Statement Sample
After you’ve made a list of assets and liabilities, download a profit and loss statement sample to make your life easier. Preparing a profit and loss statement using sample templates avoids you the hassle and confusion that comes in making one from scratch. To get started, pick the sample template that you find easy to work with and hit the download right after.
Step 4. Edit the Profit and Loss Statement
Edit the profit and loss statement sample after choosing and downloading one. As mentioned in step one, each item must be classified as assets or liabilities. The sample contains sections intended for each of those, and segregating them beforehand will make editing more convenient. To edit the sample, place each item according to the sections that they belong to. For example, bills payment or purchases are listed as liabilities.
Step 5. Save and Store the Profit and Loss Statement
Save and store the profit and loss statement after you’re done editing and filling it. Start this step by creating a new folder dedicated to profit and loss statements only. Then, save your work under the filename “profit and loss statement” with the year when it’s prepared next to it. This step enables you to review and compare it with the new one anytime you want.
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