Profit and Loss Statement/Income Statement- What you Need to Know

profits and loss - Complete Controller

A Profit and Loss Statement (P&L) has many different names: Income Statement, Statement of Operations, Statement of Financial Results, and Income Expense Statement. For this article, we will be referring to it as a Profit and Loss Statement. Every public company must submit a quarterly and yearly P&L statement for its shareholders. On the contrary, if your company is privately owned, these are still a vital piece of information necessary to be able to look at your company’s growth. A P&L statement is a formal statement that includes your company spends, how much your company makes, and what that means for you. In this article, we will answer the following questions, “What is a P&L statement, what is the difference between a P&L statement vs. a Balance Sheet, and What is the proper format for a P&L statement.”

What is a Profit & Loss Statement? Check out America's Best Bookkeepers

As stated before, a P&L Statement is a statement shared with the public (or for personal use if your company is private), that helps you look at your company’s revenue in comparison to its expenses. Important factors need to be considered when it comes to company expenses. Are you spending too much? Are you not spending enough to increase revenue? These are the questions answered by creating an in-depth P&L statement. The P&L statement is 1 of 3 statements that companies release, along with a Balance Sheet, and a Cash Flow Statement. The idea of a P&L statement is to look at the state of a company at any given time. Also, it is used to compare with P&L statements from previous years. This is how you will know whether this year, your company is creating more revenue, remaining stagnant, or decreasing.

Profit & Loss Statement vs. Balance Sheet

Many people confuse a Profit & Loss Statement with a Balance Sheet. Not to fear! The two are different but work as a team. As stated before, a Balance Sheet, as well as P&L Statement, are 2 of 3 statements a company will release every quarterly period. Therefore they go together but include different data. Simply put, a Balance Sheet is a “snapshot,” as many call it, of a company’s assets & liabilities. They are otherwise known as, what the company owns, and what they owe at any given moment. People who are most interested in this information are investors and creditors. Creditors in particular, so they can determine whether or not a company qualifies for a loan or additional credit. A P&L Statement, on the other hand, is an overall account for every expense and profit that comes into play in determining a company’s overall success in that period. Check out America's Best Bookkeepers

Format of a Profit & Loss Statement

There is no “official” format for a P&L Statement. However, some categories must be included: Sales and Revenues, costs (operating/supplies/tax expense/interest expense), and net profit. Think of the Format for a P&L statement like a math equation. Revenues – Cost = Profit. Here, we will take a look at each.

Revenues and Sales

Revenues and Sales is known as the “top line” of the P&L statement. It is the top line simply because it is what you will be subtracting from. This category should be broken down into subcategories, depending on what your company looks like and the products it offers. Subcategories of Revenues and Sales is determined by how many types of services or products your company offers or both. In the end, you will have the last subcategory labeled “total sales,” which is the total of all of your sales.

Costs Check out America's Best Bookkeepers

This is the meat of your P&L statement. This needs to be subcategorized by every type of cost your company has:

  • Cost of manufacturing/cost of maintaining supplies
  • Cost of operations (can be further broken down by office supplies, payroll, etc.)
  • Cost of interests (loans)

These are the three basic categories of Costs that a P&L statement must include. Depending on your company, it can also include cost of research and development and cost of selling products. You may find other additional costs your company needs to report not listed here.

Net Profit

This is your conclusion for your P&L Statement. After you have stated your Sales & Revenues and subtracted costs, you now have your Net Profit before Taxes. Your next category needs to be Tax Provisions (how much you paid in taxes). After subtracting your taxes, you now have your Net profit.

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