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.

FAQ

What is the difference between a P&L statement and a balance sheet?

A P&L (or income statement) covers a period of time and shows whether your business made a profit or a loss during that period. A balance sheet is a snapshot on a single date and shows what you own (assets) and what you owe (liabilities). You need both, but the P&L is what tells you if the business is actually earning money.

How often should I prepare a P&L statement?

Monthly is ideal for internal decisions — you spot problems early. Quarterly is fine for a small business, and annual P&L is the minimum for tax filing and loan applications. Most owners who track it monthly make better spending calls than those who only look at it once a year.

What counts as COGS versus operating expense?

COGS (Cost of Goods Sold) is the direct cost of what you actually sold — materials, direct labour, packaging. Operating expenses are the running costs of the business regardless of sales — rent, salaries of office staff, marketing, utilities, software. If the cost only happens when you make a sale, it is usually COGS.

Do I need a P&L statement for tax filing?

For sole proprietors and freelancers, an income summary is required to compute business income for your tax return. Companies must prepare a formal P&L as part of their financial statements. A clean Excel P&L is enough to give to your accountant.