Question: How Do I Prepare a Startup Profit and Loss Statement or Income Statement?
A profit and loss statement (sometimes called an income statement) shows the revenues and expenses, and resulting profits/losses of a business over a specific time period (a month, a quarter, or a year). Preparing an income statement at startup means you are estimating what your income will be at the end of the first year, so this statement is called a pro forma (projected) statement.
Answer:
Preparing a Year-end Pro Forma Income (Profit and Loss) Statement
Most of the information for this statement comes from your first year monthly budget (cash flow statement), and from estimated calculations on depreciation from your tax adviser. For each row, you will have a quarterly amount then a total for the year.
- First, show your business net income (usually titled "Sales") for each quarter of the year. You can break down the income into sub-sections to show income from different sources, if you wish.
- Then, itemize your business expenses for each quarter. Show each expense as a percentage of Sales. All expenses should total to 100% of Sales.
- Then show the difference between Sales and Expenses as Earnings. This is sometimes called EBITDA (earnings before interest, taxes, depreciation, amortization).
- Then show total interest on your business debt for the year and subtract from EBITDA.
- Next list taxes on net income (usually estimated) and subtract.
- Finally, show total depreciation and amortization for the year and subtract.
