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Step 1
RevenueRevenue is the business income. This is income received for the product or service the business sells to others. When completing the P&L, the revenue shown is the amount of income minus any returns or refunds issued. This number shows you how well your product or service is selling.
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Step 2
Cost of Goods Sold (COGS)COGS are costs related to selling the product or service. This is what is being spent in order to provide the product or service. It's money you are spending in order to create income.
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Step 3
Gross ProfitGross profit is the amount of money your business has left after deducting the cost of goods sold from the revenue. This lets you know what your initial profit is before regular expenses and taxes are deducted.
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Step 4
Operating ExpensesOperating expenses are the money it takes to operate your business. These are usually fixed, monthly amounts such as rent, utilities and wages. This figure tells you what it is costing you every month just to have the business and keep it running.
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Step 5
Operating ProfitDeduct operating expenses from Gross Profit and the result is Operating Profit. This figure tells you what's left of your Gross Profit after you pay the monthly bills.
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Step 6
Other Income/ExpenseReflected here is the sum of Other Income minus Other Expenses. Other Income is income from sources other than the usual ones. An example would be income from the sale of your used business equipment. Other Expenses are expenses other than the usual ones. An example of this would be interest paid on a business loan.This figure is most likely to vary from time to time. You could see Other Income increase after selling off used equipment or see Other Expenses increase if you have to replace a piece of equipment.
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Step 7
Net Profit Before TaxesAdd Operating Profit and Other Income/Expense and you get Net Profit. If Other Expenses are greater than Other Income, you'll have a negative amount. This will be deducted from Operating Profit. This tells you where your business stands financially before taxes take a bite out of it.
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Step 8
Income TaxTaxes to be paid, including federal, state and local.
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Step 9
Net Profit After TaxesSubtract Taxes from Net Profit and you get the "bottom line" or the final tally regarding the financial health of your business. This should be a positive number. This figure tells you how much money your business has left after paying the bills and taxes.
