Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

How to Make a Profit and Loss Statement

Profit and Loss Statements: A Path to Financial Clarity

A profit and loss statement (P&L or P/L) is a vital document for your business. It is simply a list of your total gross income and expenses. There is no true ‘format’ for a P&L, because each business is different than the next, even within the same industry. The P&L may look a little different than your bookkeeping, or accounting numbers for those who use an accrual method of accounting. For our purposes however, we are going to be discussing a cash method of accounting – rather, you count your income when you actually receive it, and you count your expenses when they are actually paid (just like your bank account).

Income and Expenses Categories

One of the important things a business will do, and often improve as time goes by, is keeping track of the various monies in and out of the business. Whether this is done on paper, use of a program, or by hiring someone to do the accounting work, is immaterial. Income is normally lumped together, but can have its various sources which you would group together. A hair salon may track its haircut income as one sub-category of income, and the retail sales of hair products as another sub-category (could be important for state sales tax purposes).

Expenses is where most of the work lies, as business owners should work with their tax professional (this often takes several years to get it right) on what categories their expenses should be separated into. Each business and industry is different and will have their own unique expenses. Things that can be quite common would be office supplies, advertising, and business miles driven. Never be afraid to make an additional category for something that doesn’t fit the categories you had before.

Creating the P&L

Now that you have recorded the categories of income and expenses, you are ready to make your P&L. Simply total the amounts of each category for the calendar year (Jan 1, to Dec 31) starting with income. The P&L is just the annual sums of each category of your income and expenses.

The challenge that most small businesses have, is waiting until the end of the year to try and do all of this work. ‘Wait, I need to go through ALL my receipts, categorize them, and then add them up? That’s going to take 3 days!’ As with many things in all our lives, constant upkeep is significantly better than one big job. Think of your dishes in the sink. When you let them build up for 2 days or so, the task just looks daunting, so you might procrastinate a little longer because you’re not willing to commit 2 hours to dishes right now. Then the job gets bigger the next time. The same thing happens with your business records. If you don’t regularly work on it, the task gets bigger and bigger, and it gets easier and easier to be too busy or too tired to complete it.

The Work Behind Creating a P&L

The work behind creating a P&L is helpful for reasons beyond tax preparation as well. Regular monitoring of your income and expenses is very valuable knowledge. Over the years you can see trends. Which months are high income, which months are low income. You can plan marketing or vacations around that. If you decide to use software, you can start to run reports that give you data from different viewpoints and help you find things that will help your business increase profit (a decrease in expenses, or increase in revenue both help in that regard).

If you were to visit https://molentax.com/resources/ you would find a few items we call ‘checklists’. While we have a high level of expertise working with law enforcement and real estate, we have also included a ‘general’ checklist as well. This is an example of something close to a P&L that can help you get started. You will notice there are categories, and items within each category. While this works, it is a lot of information to look at. If we were to pretend that these few categories captured all expenses for your business, then your P&L would be list something like this:

Total Income: $$
____________________

Advertising: $$

Education: $$

Legal and Professional: $$

Office Expense: $$

Entertainment: $$

Travel: $$

Communication: $$

General Supplies: $$

____________________

Year end: (here is the profit or loss number of your total income less your total expenses).

This is only a general overview of a P&L. It can be this simple for some and require more detail for others. Please consult with your tax professional or accountant/bookkeeper for assistance regarding your particular business or industry.

Charles Steinmetz
Senior Tax Professional

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

How to Save Taxes When Selling a Business

How to Save Taxes When Selling a Business Selling a business is a significant milestone, whether you’re ready to retire, start a new venture, or simply cash in on years of hard work. However, without proper tax planning, a large portion of your profits could go toward...

What to Know About the Kiddie Tax

What to Know About the Kiddie Tax The Kiddie Tax is a tax law that can catch families off guard if they’re not aware of how it works. Designed to prevent parents from shifting investment income to their children to take advantage of lower tax rates, the Kiddie Tax...

What to Know About 1099s and Contractor Payments

What to Know About 1099s and Contractor Payments For small business owners and self-employed professionals, hiring independent contractors can be a flexible and cost-effective way to grow your business. However, managing contractor payments comes with its own set of...

Breaking Down the Costs of Poor Bookkeeping

Breaking Down the Costs of Poor Bookkeeping For small business owners and self-employed professionals, bookkeeping might not always feel like a top priority. However, neglecting this critical task can lead to significant financial and operational consequences....

Top examples and benefits of why you need a 6000 lb vehicle

Maximize Your Vehicle Tax Deductions: Popular SUVs, Crossovers, and Trucks with GVWRs Over 6,000 Pounds For business owners and self-employed professionals, purchasing a vehicle with a gross vehicle weight rating (GVWR) over 6,000 pounds can open the door to...

Why Regular Financial Reports Matter for Small Businesses

Know About Financial Reports Matter for Small Businesses For small business owners and self-employed professionals, keeping a finger on the pulse of financial health is critical to long-term success. Why regular financial reports matter for small businesses becomes...

How to Prepare Your Books for Tax Season

Organize Your Financial Books for Tax Season As tax season approaches, small business owners and self-employed professionals often find themselves scrambling to organize their finances. How to prepare your books for tax season ahead of time not only makes the filing...

Choosing the Right Business Structure for Tax Efficiency

The Ultimate Guide to Business Structures and Tax Savings  Selecting the right business structure is one of the most critical decisions for any small business owner or self-employed professional. Your choice affects everything from day-to-day operations and tax...

The Right Way to Get Travel Reimbursements from Your C or S Corporation

Travel Reimbursements: Your Path to Corporate Savings If you operate your business as a C corporation or an S corporation, it's essential to understand how travel and other business-related expenses should be handled. Unlike a sole proprietorship, where business and...

Best Retirement Plan Options for a Solo-Owned C or S Corporation in 2025

Best Retirement Plans for Solo-Owned Corporations in 2025 If you own a C or S corporation and are the only employee, setting up a retirement plan is one of the smartest tax-saving moves you can make. Not only does it help you build long-term wealth, but it also allows...

Request an Appointment Today

7 + 8 =

Call us at

Share This