How Does a Profit and Loss Statement Work?

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Introduction

A profit & loss statement (P&L Statement) is a financial document usually prepared by your accountant that lists your expenses & revenues during a specific time period. These time periods are usually for a fiscal month, quarter or year. Further, P&L Statements are sometimes referred to as an income statement. Along with the balance sheet & cash flow statement, it is one of three key financial documents. This article will focus on how a P&L Statement works for small businesses.

The main purpose of a P&L Statement is to showcase the details of profitability & business activities of the company to the key stakeholders. Likewise, management can better understand what decisions need to be made on how to increase sales & reduce costs by focusing on particular areas highlighted in the P&L statement.

What does a P&L Statement usually look like?

The Australian Government provides an excel template that gives you the ability to fill out a P&L Statement for the entire financial year period here – Department of Industry, Innovation & Science. Further, they provide the list below as a starting point for your P&L Statements:

Sales

  • Total sales
  • Cost of goods sold
  • Gross profit

Expenses

  • Accountant fees
  • Advertising & marketing
  • Bank fees & charges
  • Bank interest
  • Credit card fees
  • Utilities
  • Telephone
  • Leas/loan payments
  • Rent & rates
  • Motor vehicle expenses
  • Repairs & maintenance
  • Stationery & printing
  • Insurance
  • Superannuation
  • Income tax
  • Wages (including PAYG)

Total Expenses

(total all of your expenses above)

Net Profit

(Gross Profit minus Total Expenses)

The WA Small Business Development Corporation provides an example of what a P&L Statement looks like once filled out. The Australian Department of Human Services provides a P&L Statement form for sole traders, subcontractors or partners in a partnership that have started new employment or business.

It is important to indicate in a P&L Statement whether your figures are GST inclusive or exclusive. Usually prepared by an accountant but they may require consulting a Business Lawyer to help determine some of the expenses required and the different taxes that may be applicable.

Conclusion

Whether you are preparing the P&L Statement on your own or with your accountant, it is an essential document that outlines a specific financial position for your business. To make the process easier for both your accountant and lawyer it is important to understand what fields make up the document. Further, where you decide to sell your business, the P&L Statement will be one of the key documents that potential buyers will analyse.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

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