Profit and Loss Statement

A Profit and Loss Statement (P&L), also known as an income statement, is a financial document that summarizes a company's revenues, costs, and expenses during a specific period to show net profit or loss. It provides a snapshot of a business’s financial performance over time - typically monthly, quarterly, or annually - and is a key component of a company’s financial reporting.

They are also often used alongside the balance sheet and cash flow statement to provide a comprehensive view of a company’s financial health.

Key Facts

• Purpose: Shows the company’s ability to generate profit by increasing revenue and reducing costs.‍
• Components: Includes revenue, cost of goods sold (COGS), gross profit, operating expenses, and net income.‍
• Frequency: Can be created monthly, quarterly, or annually.‍
• Users: Used by management, investors, lenders, and regulators.‍
• Comparison: Often compared across periods to assess financial performance trends.

1. What does a P&L statement show?

It shows whether a company made a profit or incurred a loss over a specific time period.

2. Why is the P&L statement important?

It helps stakeholders assess profitability, financial health, and operational efficiency.

3. What's the difference between gross profit and net income?

Gross profit is revenue minus COGS, while net income is what remains after all expenses are deducted.

4. Who uses a profit and loss statement?

Business owners, managers, investors, accountants, and lenders.

5. How does it differ from a balance sheet?

A P&L covers a time period (such as quarterly), while a balance sheet is a snapshot of assets and liabilities at a specific point in time.