How to Prepare a Simple Profit and Loss Statement

If you have reason to document your income but don't receive regular paychecks, you'll likely need to create a "P&L," or profit and loss statement. Preparing a profit and loss statement is relatively simple. You'll list your income and expenses, either on a monthly or yearly basis. Then you'll deduct your expenses from your income to arrive at your net income.

Before You Begin Preparing Your Profit and Loss Statement

The first step is to locate and organize all financial documents showing the income you've received and expenses incurred during a particular period. Typically, you'll want to assemble bank statements, receipts, check ledgers, invoices, bills, and other items related to your self-employment venture or business.

Setting Up the Profit and Loss Statement

Most P&Ls use a two-column format. After listing all sources of income, add them together to arrive at your total income. You'll do the same for your expenses. To arrive at your net income, simply subtract the total expense amount from the total income figure.

Whether you'll prepare a P&L by month, quarter, or year will depend on what you need the P&L for and who is making the request. If you're applying for a mortgage, the lender will likely want yearly P&Ls that correspond with the deductions made in your tax returns. If you're showing self-employment income in a bankruptcy case, you'll probably prepare P&Ls by month and year for the prior two years before the filing, plus a P&L showing your year-to-date figures.

Profit and Loss Statement Template

Below is a typical P&L you can use to get started. When creating your own, you'll want to adjust the categories to meet the needs of your business and delete those that don't apply. The format is simple, so you should be able to reproduce it using a two-column chart. But if you're uncomfortable creating your own, an accountant can prepare your profit and loss statement at a minimal cost.

Other P&L Expense Categories

Make changes to the P&L as needed. Other common categories include taxes, subscriptions, training courses, internet expenses, email subscriptions, and computer software. You might also want to identify nonrecurring expenses, such as furniture costs.