A profit and loss statement, or P&L, is a financial statement that summarizes the revenues, expenses, and profits of a business over a specific period of time. It is one of the three main financial statements used by businesses, along with the balance sheet and the statement of cash flows. P&L statements are used by businesses to track their financial performance and make informed decisions about their operations.
There are many different ways to format a profit and loss statement, but the following is a basic template that can be used by businesses of all sizes:
Revenues
The first section of a profit and loss statement lists the revenues of the business. Revenues are the money that a business earns from its operations. Common sources of revenue include sales of goods or services, interest income, and rent income.
When listing revenues on a profit and loss statement, it is important to be as specific as possible. For example, instead of simply listing “sales,” a business should list “sales of widgets” or “sales of consulting services.”
It is also important to note that revenues are typically reported on a gross basis, meaning that they include any discounts or returns.
Expenses
The second section of a profit and loss statement lists the expenses of the business. Expenses are the costs that a business incurs in order to generate revenue. Common types of expenses include cost of goods sold, salaries and wages, rent, and utilities.
When listing expenses on a profit and loss statement, it is important to be as specific as possible. For example, instead of simply listing “cost of goods sold,” a business should list “cost of goods sold: widgets.” It is also important to note that expenses are typically reported on a net basis, meaning that they have been reduced by any related income.
Net Income
The third and final section of a profit and loss statement shows the net income of the business. Net income is the difference between revenues and expenses. A positive net income indicates that the business is profitable, while a negative net income indicates that the business is losing money.
Net income is an important metric for businesses because it shows how much profit the business has generated over a specific period of time. Net income can be used to make decisions about investments, dividends, and other financial matters.
