PROFIT and LOSS STATEMENT

A Profit & Loss Statement (P&L) measures the activity of a business over a period of time – usually a month, a quarter, or a year. This financial report may have several different names: profit & loss, P&L, income statement, statement of revenues and expenses, or even the operating statement. The P&L tells you revenue, expenses, profit, and loss. Remember that in almost all circumstances, profit is not the same as cash flow.

The basic formula for the P&L statement is: Revenues – Expenses = Net Profit.

DEFINITIONS OF THESE CATEGORIES

Revenue is the money you receive in payment for your products or services.

Operating, or variable, expenses are the expenses that rise or fall based on your sales volume.

Gross profit or operating margin is the amount left when subtracting operating expenses from revenues.

Overhead, or fixed, expenses are costs that don’t vary much month to month and don’t rise or fall with the number of sales you make. Examples might include office staff salaries, rent, or insurance.

Operating income is income after deducting operating and overhead expenses.

Other income or expenses (non-operating) generally don’t relate to the operating side of the business but rather to how the management finances the business. Other income might include interest or dividends from company investments, for example.  Other expenses might consist of interest paid on loans.

Pre-tax income is income before federal and state governments take their share.

Income taxes How income tax is shown on the P&L varies based on the type of legal entity.  For example, a C corporation almost always shows income tax expense, but S corporations, partnerships, LLCs, and sole proprietorships rarely show income tax expense on the P&L.

Net income (after taxes) is the final amount on most profit-and-loss statements. It represents the net profit the business earned during the period, above and beyond all related costs and expenses.

To learn more, go to https://handsonbanking.org/resources/profit-and-loss/