Profit and Loss (P&L) Statement

What Is a Profit and Loss (P&L) Statement?

A Profit and Loss (P&L) statement is a financial report, also known as an income statement, operating statement, earnings statement, or statement of operations.

The P&L statement shows the company's revenue and expenses, including gains and losses. It lets you see how much profit the company is making or losing, which can help you make investment and business decisions.

The P&L statement will show you how much money your company is bringing in (revenue), how much it spends to get that money (costs), and what's left once you subtract costs from revenue (net profit).

Companies use the P&L statement to:

• Report income to investors, regulators, and tax collection agencies;

• Assess profitability;

• Identify areas where expenses can be reduced;

• Guide future business decisions; and

• Develop budgets.

Profit and Loss vs. Cash Flow Statement

A profit and loss (P&L) statement is different from a cash flow statement. While the P&L statement tracks revenue minus expenses over a period of time — typically each month or quarter — the cash flow statement tracks the movement of money into and out of your business during the same period.

Components of Profit & Loss Statement

A profit and loss statement lists the following:

The P&L statement is calculated by subtracting the cost of goods sold (COGS) from total revenue. The COGS figure includes all direct costs associated with producing and selling products or services, such as labor, materials, and shipping. In other words, it includes everything that goes into making the product or service you sell to customers, minus any discounts from suppliers.

To calculate net income, you must also subtract operating expenses from total revenue. Operating expenses include all indirect costs such as administrative salaries, office supplies, and rent or utilities for your business location.