All You Need to Know About a Profit and Loss Statement

Even if you don’t have to borrow money from a Neobank or DeFi lender to start your independent business, you still require accurate financial data to make smart decisions.

The Profit and Loss statement (abbreviated as P&L) is arguably the most significant financial document for any business owner in 2026. You might also hear it referred to as an “income statement,” but the function remains the same: it tells you the truth about your money.

What is a P&L Statement?

A profit and loss statement reveals the reality of your business over a specific period (usually a month, quarter, or year). It summarizes your revenues (what you earned) and subtracts your expenses (what you spent) to show your final result: a Net Profit or a Net Loss.

Think of the balance sheet as a snapshot of a single moment, while the P&L statement is a movie that shows your financial performance over time.

When Do You Have to Prepare It?

You should not wait for tax season to review this document.

To stay profitable, you need to review your losses and profits frequently—at least once every quarter.

Reviewing this regularly helps you:

1. Prepare for Taxes: Estimate your net income early so you aren’t surprised by the tax bill.
2. Spot Trends: Catch rising subscription costs or dipping sales before they become a crisis.

Information Needed for Preparing It

You can get most of the data for your Profit and Loss statement from your monthly budget or your accounting software dashboard. To be specific, you will need:

• Transaction Listings: A complete record of all digital transactions in your business bank account, including credit card and digital wallet purchases.
• Petty Cash Records: Details of minor cash spends (receipts you have scanned or stored).
• Adjustments: Information on any returns, refunds, or discounts you gave to customers, as these reduce your total revenue.

For income, you need a proper listing of all revenue sources—client transfers, crypto payments, checks, and cash sales. If you use modern accounting software (like Xero, QuickBooks, or AI-driven tools), this report is likely auto-generated for you.

Including Cash Transactions in Your Report

Even in a digital-first world, do not forget to include cash transactions.

If you accept cash from customers, using a digital transaction form or app is a smart move. Instead of keeping paper receipts in a physical folder (which fades over time), use a mobile scanning app to digitize every expense receipt immediately—especially for business meals and travel.

Business accounting software makes this job easier, but you still have to ensure the data is entered. If it isn’t recorded, it doesn’t exist for tax purposes.

Steps for Preparing a Profit and Loss Statement

Follow these simple steps to prepare your business’s P&L statement like a pro:

Step 1: Calculate Revenue

Start by listing your total sales (Gross Receipts) for the quarter. Break this down into sub-sections if you have different revenue streams (e.g., “Service Income” vs. “Product Sales”).

Step 2: Itemize Expenses

List your “Cost of Goods Sold” (COGS) first—these are the direct costs of making your product. Then, list your operating expenses (rent, software, marketing, salaries).

Step 3: Determine EBITDA

Subtract your operating expenses from your Gross Profit. The result is your Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). This number shows your core operational profitability.

Step 4: Account for Debt and Taxes

List the total annual interest paid on any business loans and subtract it. Then, estimate the taxes due on your net income and subtract that as well.

Step 5: Final Net Income

Finally, subtract total depreciation for the year. The number left at the bottom is your Net Income.