Whether or not items have income tax consequences-that is, regardless of whether you have to claim items as income or can deduct them as legitimate business expenses-you should include them on your profit and loss statement to ensure you're getting the fullest possible picture of your business's finances. When listing these two items, you should think as broadly and comprehensively as possible. To that end, the two main features of a profit and loss statement for a small business are income and expenses. A profit and loss statement is different from a banking statement in that you are keeping track of all funds that flow through your business, not just bank transactions. This attention to detail now can mean the difference between business success and failure in the long run.ĭefinition of a profit and loss statementĪ profit and loss (P&L) statement, which may also be called an income statement or income and expense statement, allows a business owner to see in one quick view how much money they are bringing in and spending-and how. While there's no legal requirement stating you must file a profit and loss statement with any regulatory agency, you should still consider compiling one so you know exactly what's happening with your small business's finances. From invoices to quarterly taxes, self-employed individuals have a lot of paperwork to stay on top of.
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