Accounting basics: The Profit and Loss Statement

Profit and loss statement (P&L), also known as an income statement, statement of profit and loss, or income and expense statement, is one of the three most important financial statements of any company.

The statement provides a clear picture of revenues, expenses, and profits/losses of a company within a certain time period. It is normally prepared after a year-end for a small business. The statement gives important information to current and prospective shareholders about the companies current functioning capability.

The Profit and Loss Statement is prepared by subtracting total expenses from total revenue. The result will be the net profit which is then used to pay dividends to shareholders.

The other two important financial statements of a company are its Balance Sheet and the Statement of Cash Flows. Together with the Profit and Loss Statement they provide a very clear and in-depth picture of a business’ financial position. These statements are normally analysed together for any future investment decisions.