Profit and loss statements and income statements can be used to determine projections for future cash flow trends of your business. These financial documents are instrumental in making cash flow projections. A profit and loss statement worksheet to help an employer review the profit or loss that the business is undergoing.
What is a Profit and Loss Statement?
The P&L statement is the best tool for knowing if your business is profitable. A P&L statement measures revenue (also called sales or income) and expenses over a month, quarter or year. With it you discern if you have made a profit (and how much) or if you have incurred a loss.
The most important financial management report is the P&L statement. A P&L statement will reflect your business decisions on the basic buying and selling process. A P&L will tell you how well you are managing your business and provide information on how to grow your business.
Formula for a P+L statement:
– Cost of Goods Sold
= Gross Profit
= Net Profit
Sales (also called Income or Revenue): Total amount from selling your product or service that month or quarter.
Cost of Goods Sold: Total expenditure for inventory items which customers buy. Cost of Goods Sold consists of the cost of purchasing the items, freight, manufacturing costs, modification costs, and packaging. For services, this is the cost of providing the services, including labor, material used, and transportation.
Gross Profit: Sales less Cost of Goods Sold.
Overhead: Expenses associated with your ongoing business operation.
Net Profit: Gross Profit less Overhead.
-Net Profit is what remains to pay for expansion, equipment, loan repayment, income taxes and owner’s draw.
All quality business accounting software programs compile a P&L statement at the push of a button. The accuracy of your P&L statement will depend on how it is set up for your company and your input data. Print out your P&L regularly to track your business progress. Use your P&L statement as the basis for building a cash flow projection.
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