Profit and Loss Statement (P&L / Income Statement)
A financial report summarizing revenue and expenses over a period of time (month, quarter, year) to show net profit or loss.
Detailed Explanation
The P&L is structured top-to-bottom: revenue, cost of goods sold, gross profit, operating expenses, operating income, other income and expense, taxes, and net income. Comparative P&Ls (current period vs prior period vs budget) are how owners and managers spot trends. The P&L pairs with the balance sheet (point-in-time) and cash flow statement (period) to form the three core financial statements.
Key Points
- Covers a period of time (month, quarter, year), not a single date.
- Flows top to bottom: revenue, COGS, gross profit, operating expenses, operating income, then net income.
- Gross profit margin and net profit margin are the key health metrics it reveals.
- Comparative P&Ls (this period vs prior period vs budget) surface trends and anomalies.
- One of the three core statements alongside the balance sheet and cash flow statement.
Practical Example
A business reports $500,000 revenue, $200,000 cost of goods sold (60% gross margin), $250,000 of operating expenses, leaving $50,000 of net income (a 10% net margin). Comparing to last year's 14% net margin signals that costs grew faster than revenue, prompting a closer look at expenses.
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Learn about Bookkeeping ServicesRelated Terms
Balance Sheet
A point-in-time financial statement showing what a business owns (assets), what it owes (liabilities), and the residual claim of owners (equity), with the fundamental equation Assets = Liabilities + Equity.
Bookkeeping
The systematic recording, classification, and reconciliation of a business's financial transactions to produce accurate financial statements.
Chart of Accounts
The structured list of every account a business uses to record financial transactions, organized into assets, liabilities, equity, revenue, and expenses.
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