Free Profit and Loss Statement Template (Excel with Formulas, Fillable PDF, Word)

What is on the page

Period and basis

The dates covered and whether income is counted when invoiced (accrual) or when received (cash). Most small businesses and all Schedule C filers who have not elected otherwise use cash basis; say which, because the two give different numbers for the same year.

Revenue

Everything the business earned from customers, before any costs, less returns and refunds. Sales tax collected is not revenue; it is money held for the state.

Cost of goods sold

For businesses that sell products: opening inventory plus purchases and direct costs, less closing inventory. Service businesses usually leave this blank and put subcontractor costs in operating expenses.

Gross profit

Revenue less cost of goods sold. The margin here tells you whether the pricing works before overhead is considered.

Operating expenses

The costs of running the business that are not tied to a specific sale: rent, wages, insurance, marketing and so on. The annual version uses the Schedule C Part II categories so the transfer to the tax return is line by line.

Net profit

Gross profit less operating expenses. For a sole proprietor this is the figure that flows to Schedule C line 31 and on to the 1040, and the base for self-employment tax.

Depreciation

The portion of equipment, vehicle and furniture cost deducted this year. Section 179 and bonus depreciation let most small businesses deduct the full cost in the year of purchase; your tax preparer decides the method.

Meals

Business meals are generally 50% deductible; enter the deductible half and note the full amount, as the sample does.

Which version to use

• Annual: year-end statement for the tax return, a loan application or a partner. Categories match Schedule C, so the preparer can copy the numbers.
• 12-month: management view. Fill it monthly from your bank and bookkeeping records and the pattern (slow months, rising costs, a quarter where margin dropped) becomes visible long before year end.
• Simple: freelancers and side businesses. Income by client, expenses by category, net profit and a tax set-aside estimate so the quarterly estimated payment isn't a surprise.

How to build a P&L from your records

1. Pick the period and the basis. Cash basis: use the dates money moved. Accrual: use invoice and bill dates.
2. Revenue: total your invoices paid (cash) or issued (accrual) in the period from the billing tracker or your invoicing system; subtract refunds.
3. Cost of goods sold, if you sell products: count inventory at the start and end, total purchases and direct labor.
4. Expenses: total each category from the expense tracker, bank and card statements. Personal items do not belong here; mixed items (phone, vehicle, home office) go in at the business percentage.
5. Enter the figures; Excel calculates gross profit, total expenses, net profit and margin.
6. Sanity check: net profit plus owner draws plus loan repayments plus asset purchases should roughly equal the change in your business bank balance over the period. If not, something is missing.

Reading the numbers

Gross margin (gross profit ÷ revenue) is the health of your pricing. Retail typically runs 25 to 50%, restaurants 60 to 70% on food, services 50 to 90% depending on labor. If it is falling, costs are rising faster than prices. Net margin (net profit ÷ revenue) is what you keep; 10% is respectable for most small businesses, 20% is good, and a freelancer with low overhead can run 60% or more. Expense ratios (each category ÷ revenue) compared month to month show what is creeping. Rent above 10% of revenue or payroll above 30 to 35% (outside labor-heavy trades) are common warning signs. A profitable P&L with an empty bank account means money is tied up in receivables or inventory; the cash flow planner is the companion sheet for that.

P&L vs Schedule C vs cash flow

The P&L is a management document; Schedule C is the tax form built from it, with the IRS's rules applied (50% meals, depreciation methods, home office via Form 8829 or the simplified method, the self-employed health insurance deduction taken on the 1040 rather than here). The annual template's expense lines follow Schedule C Part II in order so the two reconcile. Neither shows cash: loan principal repayments, owner draws and equipment purchases (other than through depreciation) are not expenses, and customer deposits received aren't yet revenue on the accrual basis. A business can show a profit and run out of cash, or show a loss while the bank balance grows. Keep the P&L for profit and the cash flow planner for survival.

Editing the Word and Excel versions

Excel sums each section, calculates gross profit, net profit and margin, totals the twelve months and the year, and on the simple version estimates self-employment tax and a total set-aside at the income tax rate you enter. Rename categories to match your chart of accounts; insert rows inside a section and the sums follow. Year-end, pair the statement with the tax document checklist and the home office worksheet.

Questions

What is the difference between a profit and loss statement and an income statement?

Nothing; they're the same report. "Income statement" is the accounting term, "P&L" the everyday one. "Statement of operations" and "earnings statement" also mean the same thing.

Do I need a P&L if I am a sole proprietor?

Yes, at least annually: Schedule C is essentially a P&L in the IRS's format, and lenders, landlords and some clients ask for one. A monthly P&L is also the simplest way to know whether the business is working.

Should I use cash or accrual basis?

Most sole proprietors and small businesses use cash basis because it matches the bank account and is simpler; it's the default for Schedule C. Accrual gives a truer picture when you carry inventory or invoice on long terms. Whichever you choose, use it consistently and state it on the statement.

Is owner's salary an expense on a sole proprietor's P&L?

No. A sole proprietor's draws are distributions of profit, not expenses, and do not appear on the P&L or Schedule C. Wages paid to employees are expenses. For an S corporation, the owner's W-2 salary is an expense.

How much should a freelancer set aside for taxes?

Self-employment tax is 15.3% of 92.35% of net profit (about 14.1% of profit) up to the Social Security wage base, plus federal and state income tax at your marginal rate. Setting aside 25 to 30% of net profit covers most people; the simple version calculates the self-employment part and adds the income tax rate you choose.