Generating a profit and loss statement, otherwise known as an income statement or P&L statement, is among the most important accounting functions for any business. This is because a P&L statement details the gross income the business has earned and compares it to the outgoing expenses for that same period, letting business owners see at a glance how much net income their business has generated. Here’s a quick guide to P&L statements and their importance.

The Importance of P&L Statements

Gauge the Future

Accounting and financial service providers produce profit and loss statements for their clients for a number of reasons. Every business in the country is required by federal law to generate profit and loss statements. In addition, P&L statements can help business owners evaluate their businesses by showing how profits have shifted over time. By comparing P&L statements across several months, the business owner can see whether profits have risen or fallen. This can help determine a rate of growth for the future.

Prove Equity 

When an individual applies for a home improvement loan, they typically use the equity they own in their home as collateral for the loan. Similarly, a business owner can use a P&L statement to show a lender the net worth of their business. This can help the business owner apply for a loan, which can be used to improve the business. Since a P&L statement shows the capital earned and the total outgoing expenses, this is one of the more efficient ways of establishing business equity.

Simplify Tax Return Preparation

Accounting services are particularly valued than at tax time, especially for business owners. Filing taxes is generally a more complex process for commercial businesses than it is for individuals, but a yearly profit and loss statement can help simplify the filing process. Since this statement will list the total income for the year and the total expenses paid out, most of the information needed to file taxes will be included in this statement. 

Sharrard, McGee and Co., PA provides quality tax preparation and other financial services in the High Point, NC area. We have locations in High Point and Greensboro. The complexities involved in business accounting and ever-changing tax laws require the expertise of an established firm. To learn more about the accounting services we offer, visit our website or call us at (336) 884-0410 in High Point or (336) 272-9777 in Greensboro.