Profit and Loss Statement (P&L) (2024)

FAQs

How to interpret a P&L statement? ›

The P&L statement is made up of three components: revenue, expenses, and net income. Revenue is the total amount of money that a company brings in from its sales. Expenses are the costs incurred by a company to generate revenue. Net income is the difference between revenue and expenses.

The single-step method is the simplest way to create a P&L statement. With this approach, you list all revenue items at the top of the statement and subtract all expenses to arrive at the net income or loss. It requires only a single calculation.

The main categories that can be found on the P&L include: Revenue (or Sales) Cost of Goods Sold (or Cost of Sales) Selling, General & Administrative (SG&A) Expenses.

Net profit

The bottom line of the profit and loss statement is your net earnings—the total profit for your business, taking into account all internal and external expenses.

Basic analysis of the income statement usually involves the calculation of gross profit margin, operating profit margin, and net profit margin, which each divide profit by revenue. Profit margin helps to show where company costs are low or high at different points of the operations.

Your income statement follows a linear path, from top line to bottom line. Think of the top line as a “rough draft” of the money you've made—your total revenue, before taking into account any expenses—and your bottom line as a “final draft”—the profit you earned after taking account of all expenses.

While the P&L statement gives us information about the company's profitability, the balance sheet gives us information about the assets, liabilities, and shareholders equity. The P&L statement, as you understood, discusses the profitability for the financial year under consideration.

If a shopkeeper brings a cloth for Rs.100 and sells it for Rs.120, he has made a profit of Rs.20/-. If a salesperson has bought a textile material for Rs.300 and has to sell it for Rs.250/-, he has gone through a loss of Rs.50/-.

Can you make your own profit and loss statement? ›

It's not difficult to find a profit and loss statement template that can be used to create a simple profit and loss statement, but the entire process is much easier if you use accounting software.

It includes two main types of information: expenses and revenues. Expenses refer to the costs incurred by a business in its operations, such as rent, wages, utilities, and supplies. These expenses are subtracted from the revenues to determine the net profit or loss.

You can ask your accountant to prepare a profit and loss statement for your company or you can build one yourself using the steps below.

A profit and loss (P&L) statement summarizes the revenues, costs, and expenses incurred during a specific period. A P&L statement provides information about whether a company can generate profit by increasing revenue, reducing costs, or both.

The Balance Sheet reveals the entity's financial position, whereas the Profit and Loss account discloses the entity's financial performance. A Balance Sheet gives an overview of the assets, equity, and liabilities of the company, but the Profit and Loss Account is a depiction of the entity's revenue and expenses.

Remember: Open P&L measures the amount of money gained or lost from the beginning of the trade or the moment you opened the position, while day P&L refers to money made or lost on a position from the previous night's closing price, including any intraday profit and loss.

Basic analysis of the income statement usually involves the calculation of gross profit margin, operating profit margin, and net profit margin, which each divide profit by revenue. Profit margin helps to show where company costs are low or high at different points of the operations.