What is a Profit and Loss Statement?

A profit and loss (P&L) statement is a financial document that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. It is also known as an income statement or statement of operations. The P&L statement is a key report for any business, as it provides an overview of how the organization is performing financially. It also helps investors, lenders, and other stakeholders to assess the financial health of the organization.

Revenue

The first section of the P&L statement includes the total revenue earned during the period. This includes all income from sales, services, interest, investments, and any other sources of revenue. The total revenue is then divided into categories such as product sales, service fees, and interest income.

Cost of Goods Sold

The cost of goods sold (COGS) is the cost associated with producing the goods or services sold during the period. This includes costs such as the cost of raw materials, labor, and overhead. The COGS is subtracted from the total revenue to calculate the gross profit.

Expenses

The expenses section of the P&L statement includes all other costs incurred during the period. These include operating expenses such as rent, utilities, advertising, payroll, and taxes. The total expenses are subtracted from the gross profit to calculate the net profit or loss for the period.

Net Profit or Loss

The net profit or loss is the final figure on the P&L statement. This figure represents the amount of money that the business has made or lost during the period. If the net profit is positive, then the business has earned a profit, while if the net profit is negative, then the business has incurred a loss.