The term profit and loss (P&L) statement refers to a financial statement that shows how much money was made, how much money was spent, and how much money was lost during a certain time period, usually a quarter or fiscal year. These records show how well a company can make money by increasing revenue, cutting costs, or both. These statements are often shown in cash or accrual form. To know more about Profit and Loss Accounts, click here.
Financial statements in a business plan are often the most important because they show how much money a business made or lost. P&L statements are also called a(n), which means a statement of profit and loss or income statement
When you look at a P&L or income statement, you can see how your money changed over a certain amount of time. However, the balance sheet is a picture that shows what the company owns and owes right now. If a company uses accrual accounting, it is important to compare its income statement to its cash flow statement. This is because, with accrual accounting, a company can record revenue and expenses before cash changes hands.
This document has a general format like the one shown below. It starts with an entry for revenue, which is called the “top line.” Then, it subtracts the costs of running a business, like the cost of goods sold, operating expenses, taxes, and interest expenses, from that. Profit or earnings are another way to say net income, which is the difference between what the company makes and what it makes.
Different types of Profit and Loss (P&L) Statements:
A P&L statement can be made in one of two ways. The cash method and the accrual method are two ways to keep track of your money.
The Cash method
As you can see, the cash accounting method is only used when money comes and goes from the business. This is a very simple way to keep track of how much money you get or get paid. When cash is received, a business records it as revenue. When cash is used to pay bills or debts, the business records it as a liability, which means that the business has to pay them. This method is used by small businesses and people who want to keep track of their own money.
The Accrual Method
Accrual accounting is a way to keep track of how much money is made. People who use the accrual method keep track of money that they think they’ll get in the future. It doesn’t matter that the customer hasn’t paid for the product or service yet; the company still shows the revenue on its P&L statement. Even though the company hasn’t spent any money yet, liabilities are still counted.
In business, a P&L statement is one of the three types of financial statements that are made. The balance sheet and the cash flow statement are the two other things that you need to know about. To know more about Cost Accounting, click here.