Profit and Loss (P&L) Statement – Definition

Cite this article as:"Profit and Loss (P&L) Statement – Definition," in The Business Professor, updated October 11, 2019, last accessed June 3, 2020, https://thebusinessprofessor.com/lesson/profit-and-loss-pl-statement-definition/.

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Profit and Loss Statement (P&L) Statement Definition

Every company or corporate organization has the profit and loss (P&L) statement, this is the financial statement that states the revenues and expenses of the company during a specific period of time. As a financial statement, the profit and loss (P&L) statement is essential for the evaluation of the finances of a firm. How much revenue a company generates during a specific period and the amount of costs or expenses incurred are recorded on this statement.

The profit and loss (P&L) statement is also called an income statement. In certain cases, the profit and loss (P&L) statement is also called statement of financial income, statement of operations and earnings/expense statement.

A Little More on What is a Profit and Loss Statement (P&L)

The profit and loss (P&L) statement is a financial statement that reveals the ability of a company to turn its revenues to net profit or otherwise. This statement is important for evaluating the financial performance of a firm for a particular period. Alongside the P&L statement, there are other two important financial statements that are used for evaluating the performance of a company, these are the cash flow statement and the balance sheet.

The  P&L statement, otherwise called the income statement shows the revenues of a firm and its expenses or costs accrued within an accounting period.

The P&L statement is different from the cash flow statement or balance sheet. The balance sheet of a company shows the amount of money that is available in a firm and the amount the firm owes its vendors and suppliers. The cash flow statement on the other hand, indicates the changes in the inflow and outflow of cash in a company for a particular period. In the P&L statement, the revenue of a firm is entered at the top line.

The expenses or operating costs incurred by the business are subtracted from the revenue. The income statement or P&L statement of a company is ot static, it changes over different accounting periods due to changes in revenue and expenses of the company.

Here are the key things to know about the profit and loss (P&L) statement;

  • The P&L statement is a financial statement that contains the revenues and expenses of a firm for an accounting period.
  • The P&L statement is otherwise called income statement, statement of operations, statement of financial income and earnings statement/expense statement.
  • The P&L statement alongside the balance sheet and the cash flow statement are the three financial statements used in the evaluation of the financial performance of a country.
  • P&L statements vary from one accounting period to another, this is why it is vital to make comparison between P&L statement for different accounting periods.

References for “Profit and Loss Statement (P&L)

https://www.investopedia.com/terms/p/plstatement.asp

https://en.wikipedia.org/wiki/Income_statement

https://corporatefinanceinstitute.com › Resources › Knowledge › Accounting

https://investinganswers.com/dictionary/p/profit-loss-pl-statement

https://www.thebalancesmb.com › … › Business Law & Taxes › Financing

https://www.accountingcoach.com/blog/what-is-the-profit-and-loss-statement

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