Overview of Profit & Loss (P&L) Statement

Definition of
Profit & Loss (P&L) Statement

Professor A defines Profit & Loss (P&L) Statement.

What is a Profit & Loss (P&L) Statement? A Profit & Loss (P&L) Statement, also widely known as an Income Statement, Statement of Operations, or Statement of Earnings, is one of the three core financial statements prepared by businesses. It summarizes a company's revenues, costs, and expenses incurred during a specific period, such as a month, quarter, or year. The primary purpose of the P&L statement is to show a company's financial performance and determine its net profit or loss for that period.

Activities Related to
Profit & Loss (P&L) Statement

Activities involved in preparing and analyzing a P&L Statement.

Here is a list of P&L Statement related activities: Gathering data on all revenues earned during the period, Calculating Cost of Goods Sold (COGS) to determine Gross Profit, Summarizing all Operating Expenses (OPEX), Calculating Operating Income, Accounting for non-operating income/expenses, interest expense, and taxes, Determining the final Net Profit or Net Loss, and Presenting this information in a structured statement format. Accurate bookkeeping is crucial for its preparation.

The Importance of
the Profit & Loss (P&L) Statement

Two team members discussing the importance of the P&L Statement.

The Profit & Loss (P&L) Statement is vital for small business owners as it clearly shows whether the business made money or lost money over a period. It helps in assessing financial performance, identifying trends in revenues and expenses, and understanding the key drivers of profitability. This information is essential for making informed decisions about operations, budget planning, pricing strategies, and cost control. Lenders and investors also heavily rely on the P&L statement to evaluate a company's financial health and potential. For more details, see our blog on the Anatomy of an Income Statement.

Key Aspects of
Profit & Loss (P&L) Statement

Golden Key highlighting key aspects of a P&L Statement.

Performance Over a Period
Reports financial activity for a defined timeframe (e.g., month, quarter, year), unlike the Balance Sheet which is a snapshot at a point in time.

Equation: Revenue - Expenses = Profit/Loss
The fundamental structure involves subtracting total expenses from total revenues to arrive at the net profit or loss.

Key Profitability Indicator
The primary financial statement for assessing a company's ability to generate profit from its operations.

Synonymous with Income Statement
These terms are used interchangeably to describe the same financial report.

Concepts Related to
Profit & Loss (P&L) Statement

Brainstorming concepts related to the P&L Statement.

The Profit & Loss (P&L) Statement, or Income Statement, is a core component of a company's Financial Statements. It details key figures such as Revenue, Cost of Goods Sold (COGS), Gross Profit, Operating Expenses (OPEX), Operating Income, and ultimately Net Profit or Loss. It reflects the results of operations based on accrual accounting principles. See also: Income Statement vs Profit and Loss.