How to Make a Profit and Loss Statement in Excel (Step-by-Step)

A profit and loss statement (P&L) tells you the most important thing about your business: did it make money? It is also called an income statement, and you will need one for tax filing, loan applications, and simply understanding whether your business is healthy. The good news is you do not need accounting software to make one — Excel works perfectly. Here is how to build a profit and loss statement in Excel, step by step.

What a profit and loss statement shows

A P&L summarises your income and spending over a period (a month, quarter, or year) and works down to your profit in a few clear stages:

• Revenue — all the money your business earned
• Cost of Goods Sold (COGS) — the direct cost of producing what you sold
• Gross Profit — Revenue minus COGS
• Operating Expenses — rent, salaries, marketing, utilities, and so on
• Net Profit — Gross Profit minus Operating Expenses (your bottom line)

Step-by-step: build a P&L in Excel

1. List your revenue. In a column, add each income source (sales, services, other income) and the amount. Total them with a SUM formula.
2. List your cost of goods sold. Add the direct costs of what you sold — materials, direct labour — and total them.
3. Calculate gross profit. Subtract Total COGS from Total Revenue. This shows how much you make before running costs.
4. List your operating expenses. Add rent, salaries, utilities, marketing, software, and any other running costs, then total them.
5. Calculate net profit. Subtract Total Operating Expenses from Gross Profit. This is your actual profit (or loss).
6. Review your margins. Compare net profit to revenue to see your profit margin, and compare periods to spot trends.

Gross profit vs net profit

People mix these up. Gross profit is what is left after the direct cost of your products or services. Net profit is what is left after everything, including rent and salaries. A business can have a healthy gross profit but a small (or negative) net profit if its running costs are high — which is exactly why the P&L is so useful.

Common mistakes to avoid

• Mixing COGS with operating expenses — keep direct product costs separate from running costs, or your gross profit will be wrong.
• Forgetting some expenses — small recurring costs add up; include them all.
• Not doing it regularly — a P&L is most useful when you update it every month.

Save time with a free template

You can set all of this up from scratch, or start from our free Profit and Loss Statement template — it already has the revenue, COGS, and expense sections with the gross profit and net profit formulas built in. Just enter your figures.

To track the day-to-day numbers that feed your P&L, our business expense tracker and cash book template work well alongside it.

Summary

A profit and loss statement walks from revenue down to net profit through gross profit and expenses. Build it once in Excel with SUM and subtraction formulas — or download a ready-made template and just fill in your numbers.