Profit and Loss Statement: How to Create, Template & Examples

If you run a small business, a profit and loss statement tells a story—often the most important one about whether you’re actually making money. It’s also the document lenders and investors ask for before they trust you with their capital. The good news: you don’t necessarily need to hire an accountant to build one, especially if you start with a solid template. Here’s what every small business owner needs to know about creating and using a P&L statement, with free resources and the warning signs that something might be wrong.

Also known as: Income statement · Key components: Revenues, costs, expenses, net profit · Typical periods: Monthly, quarterly, yearly · Prepared by: Accountants or business owners · Primary purpose: Shows profitability over time

The data shows four consistent patterns across template providers: a clear revenue-then-costs structure, six standard section labels, Excel or spreadsheet as the primary format, and gross profit as the first intermediate calculation. Understanding these patterns helps you evaluate any template you download.

What is in a profit and loss statement?

Revenue section

• Net sales (after returns and discounts)
• Service fees
• Subscription or recurring income

The revenue section starts with gross sales, then deducts returns and discounts to arrive at net sales—the figure that actually represents money earned. Harvest’s template guide emphasizes this distinction: failing to deduct returns and discounts leads to inaccurate net sales figures that overstate your actual earnings.

The implication: every revenue figure you enter must account for what you actually collected, not what you invoiced.

Costs and expenses

• Cost of goods sold (direct production costs)
• Operating expenses (rent, utilities, salaries)

These two categories separate the direct costs of making or buying what you sell from the indirect costs of running the business. Corporate Finance Institute’s template uses a formula-aware structure where adding rows for new expense categories requires adjusting existing formula ranges—otherwise your totals will be wrong.

Net profit calculation

• Gross profit = Revenue minus cost of goods sold
• Net profit = Gross profit minus total operating expenses

The formula is straightforward: Revenue − COGS = Gross Profit; Gross Profit − Operating Expenses = Net Income. QuickBooks notes that revenue, expenses, and income form the core components of any P&L statement. Harvest’s template uses six core sections: Revenue, COGS, Gross Profit, Operating Expenses, Operating Income, and Net Income.

The pattern is consistent: templates structure the six-section flow (Revenue → COGS → Gross Profit → OpEx → Operating Income → Net Income), which means every section builds toward the final net income figure. Knowing this helps you evaluate any template you download for completeness.

How do I make a simple profit and loss statement?

Gather financial data

• Pull bank statements and invoices for the period
• Categorize transactions into revenue and expense types
• Verify template formulas will sum correctly with your numbers

Bench Accounting’s experts recommend starting with a template designed by bookkeepers, as DIY spreadsheets often contain formula errors that go unnoticed until tax time.

List revenues

• Product sales, service fees, subscription income
• Subtract returns and discounts to get net sales

Subtract costs and expenses

• Cost of goods sold = Beginning inventory + Purchases − Ending inventory
• Gross profit = Revenue − COGS
• Net profit = Gross profit − Total operating expenses

Harvest’s step-by-step guide walks through the calculation sequence: enter company name and period, input revenue minus returns and discounts, enter COGS, calculate gross profit as Revenue minus COGS, list operating expenses, and compute net income by subtracting total expenses from gross profit.

Who prepares a profit and loss statement?

Accountants’ role

• Bookkeepers reconcile accounts
• Accountants review and certify statements
• Typical service included in regular accounting packages

QuickBooks defines the key P&L components as revenue, expenses, and income—the standard framework that accountants and bookkeepers use when preparing these statements.

Business owners DIY

• Small business owners can self-prepare basic versions
• Professional help recommended for financing applications
• Simple templates reduce technical barriers

Harvest notes that an Excel P&L template offers flexibility and automation to ensure accuracy—making the DIY path more accessible. The key is starting with a well-structured template and verifying your data entry.

What this means: basic P&L preparation is accessible to business owners without formal accounting training, but complexity grows quickly as revenue and expense categories multiply.

Can I do my own profit and loss statement?

Tools needed

• Excel or Google Sheets (most common)
• Bank statements, invoices, receipts
• Basic understanding of revenue vs. expense categories

Steps for beginners

• Download a free template (Excel, Word, or PDF)
• Enter company name and reporting period
• Input revenue figures, subtract cost of goods sold
• List operating expenses, calculate net income

Free templates

• Smartsheet offers 8+ templates: simple, monthly, annual, quarterly, dashboard, self-employed, rental property, restaurant
• Bench Accounting provides a free template created by bookkeeping experts
• TemplateLab hosts 53 free templates in Excel and PDF formats
• Corporate Finance Institute (CFI) offers an Excel template where users enter data in blue cells to auto-generate the statement

The implication: templates work well for tracking and tax prep, but they have a meaningful limitation—lenders and investors typically require reconciled, accrual-based statements that a spreadsheet template cannot provide. Using a template as your only financial document can delay financing.

What are some red flags in a P&L?

Declining revenues

• Two or more consecutive periods of declining revenue
• Revenue dropping faster than industry benchmarks
• Sudden unexplained drop in a key product line

Rising expenses

• Expenses increasing faster than revenue
• Unexplained spikes in specific cost categories
• Gross profit margin compressing over time

Negative net profit trends

• Multiple quarters of net losses
• Expenses consistently exceeding revenue
• Cash flow strain despite apparent profitability on paper

“An Excel P&L template is a powerful tool for small businesses, offering flexibility and automation to ensure accuracy.”

— Harvest (Time Tracking Tool)

“Lenders and investors require reconciled, accrual-based P&L statements—not spreadsheets. Using only templates can delay financing as they are backward-looking and not real-time.”

— 1800accountant (Accounting Blog)

For small business owners, the choice is straightforward: templates handle day-to-day profitability tracking and tax preparation adequately, but they cannot substitute for accounting software when lenders or investors require formal financial statements. As the business grows, those reconciliations become non-negotiable.