A profit and loss statement aggregates the revenues, expenses, and profits or losses of a business. This report portrays the financial results of a business for a specific period of time, such as for a month, quarter, or year. If it is being reported by a publicly held company, the P&L also includes both basic and diluted earnings per share information. The document is identical to an income statement.
The profit and loss statement is considered by many to be the most crucial of the financial statements, for it reveals the ability of the reporting business to generate a profit. The statement is particularly useful when viewed on a trend line, to see how an organization is faring over time.
The general format of the profit and loss statement, as presented from top to bottom, is as follows:
- Gross sales
- Sales returns and allowances
- Net sales
- Cost of goods sold
- Selling, general and administrative expenses
- Operating profit
- Income taxes
- Net profit
The outcome of a P&L can vary, depending on whether a business is using the cash basis or accrual basis of accounting. These different methods can be impacted by the timing of cash flows entering and departing a business.
The P&L is part of the financial statements, which are also comprised of the balance sheet and the statement of cash flows. At a minimum, one should review the profit and loss statement with the balance sheet, to gain a clear view of both the financial results and financial position of a business.
The easiest way to create a profit and loss statement is to print it directly from the company's accounting software package. If the books are being kept manually, then it is necessary to first create the trial balance report, then extract the line items from that report pertaining to the income statement, and then aggregate this information into the proper format for the statement.
The profit and loss statement is also known as the P&L, P&L statement,profit statement, or income statement.