A profit and loss statement (P&L) is a summary of an organization's income and expenses over time.
Profit and Loss Statement Definition and Examples
A profit and loss statement, also called an "income statement," is a financial statement that shows how much money was made and how much money was spent over a specific period. This report categorizes revenues and expenses to help you understand what drives a company's profitability. For example, you can see if a company spends more on production than it earns, and you can separate operating profits from financing costs and taxes.| Sample P&L Statement Q3 20XX | |
| Total Revenue | $500,00 |
| Cost of Goods Sold | $100,00 |
| Gross Profit | $400,00 |
| Selling and Operating Expenses | $50,000 |
| General and Admin Expenses | $30,000 |
| Total Operating Expenses | $80,000 |
| Operating Income | $320,00 |
| Interest Expenses | $25,000 |
| Income Before Taxes | $295,00 |
| Income Tax Expense | $103,20 |
| Net Income | $191,70 |
What is a Profit and Loss Statement, and How Does It Work?
The story behind profitability (or losses) unfolds as you go through income and expenses one by one. The income statement begins with revenue and progresses through expenses to the organization's profit or loss. Tip: The earnings per share of a company are included in some P&L statements (EPS). If any parts or materials are needed, they are usually included in the cost of goods sold (COGS). Gross profit is the result. Following that, the statement deducts any operating expenses such as payroll, utilities, maintenance costs, and other costs. As a result, operating profit is generated. At this point, you can tell how successful the business is at delivering high-quality products or services. It's critical to know the bottom line after all taxes and interest costs, in addition to knowing how to operate at a profit. If a business borrows money, high interest rates could completely wipe out any profits. Looking at interest expenses, you can tell if a company is using debt wisely. Furthermore, because taxes are a fact of life for many businesses, you must know how much after-tax profit is left after paying all necessary expenses. After subtracting everything, you arrive at net income, including input costs, operating expenses, financing costs, and taxes.Timeline Analysis of Profit and Loss Statements
A profit and loss statement (P&L statement) is a snapshot of a single period's financial results. However, that information may be useless unless you understand the bigger picture. You might be able to spot trends by looking at how the P&L statement changes over time. For example, if COGS rises sharply, it could indicate lower profitability in the future (or just a temporary spike in input prices). As a result, each P&L statement must be viewed as a separate puzzle piece.Financial Statements of Others
The amount of money made and spent is disclosed in a financial statement known as a profit and loss statement (P&L). However, other financial statements should be reviewed as well for a complete picture of an organization's financial health. Tip: When it comes to financial statements, it's critical to look at how they change over time. Comparing statements from competitors and others in similar industries may also be beneficial.Accounts Payable
A company's assets, liabilities, and equity are shown on a balance sheet. Assets, which appear on the balance sheet's left side, are items that the company can sell or use to generate revenue. Liabilities on the right represent costs or commitments that might cut into profits. Finally, equity is the value of a company after all liabilities have been satisfied and all assets have been exhausted.Statement of Cash Flows
Cash flow statements show how cash levels have changed over time. Because businesses rely on liquidity to stay afloat, the ability to manage cash is crucial. It's common to mix up the income statement and cash flow statement. However, the P&L statement explains the financial concept of profits, which may or may not have an impact on cash flow. Depreciation, for example, appears on the P&L statement as an "expense," but it's an accounting concept, not a cash flow. Actual payments and receipts are the focus of the cash flow statement.Important Points to Remember
- A profit and loss statement explains the revenue and costs that result in a company's profits (or losses).
- From top-line revenue to bottom-line revenue, the document progresses.
- It's a good idea to look at changes in P&L statements over time.
- A P&L statement can be supplemented with additional financial statements.
