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Simple English definitions for legal terms
profit and loss statement
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A quick definition of profit and loss statement:
A profit and loss statement, also known as P&L, is a financial statement that shows how much money a business made and spent during a specific time period. It helps to determine if the business made a profit or a loss. This statement is one of three financial statements that public companies issue quarterly and annually, along with the balance sheet and cash flow statement. The profit and loss statement starts by finding the total sales and revenue and then subtracting the different costs from the revenue. Some costs may be easy to calculate, like the cost of goods sold, but others may be more challenging to pair with a specific period, like operational, administrative, and overhead costs.
A more thorough explanation:
A profit and loss statement, also known as P&L, is a financial statement that shows a business's gross income and expenses. It is used to determine the net profit or loss for a specific period.
For example, a company may create a profit and loss statement for the first quarter of the year. The statement would show the total revenue earned during that period and subtract all the costs incurred, such as the cost of goods sold, operational costs, administrative costs, and overhead costs. The result would be the net profit or loss for that quarter.
Every public company issues a profit and loss statement quarterly and annually, along with the balance sheet and the cash flow statement. The profit and loss statement reflects a company's financial performance over a period, as opposed to their financial position in a single moment, as with the balance sheet.
Preparing a profit and loss statement can be challenging because it requires pairing operational, administrative, and overhead costs to a particular period. However, it is an essential tool for businesses to understand their financial performance and make informed decisions.