What is Profit and Loss Statement (P&L)?
The Short Answer
Profit and Loss Statement (P&L) explained simply
The Profit and Loss Statement, often called a P&L or Income Statement, is a key financial document. It shows how much money a business made and spent over a set time, like a month, quarter, or year. Think of it as a report card for your business’s financial performance. It starts with all the money that came in (revenue), then subtracts the costs of doing business (expenses) to arrive at the net profit or loss. This statement helps owners, investors, and lenders understand a company’s financial health and profitability.
Real-World Example
Understanding a Simple P&L
Let's say a small coffee shop has the following for a month:
- Revenue: $10,000 (from selling coffee and pastries)
- Cost of Goods Sold (COGS): $3,000 (cost of coffee beans, milk, sugar, etc.)
- Gross Profit: $7,000 ($10,000 - $3,000)
- Operating Expenses: $2,000 (rent, utilities, salaries)
- Net Profit: $5,000 ($7,000 - $2,000)
This P&L shows the coffee shop made a $5,000 profit that month.
Why this matters
The P&L statement is crucial because it shows if your business is making money. It helps you track trends, identify areas where you might be spending too much, and make smart decisions about pricing and operations. For buyers, it’s one of the first things they look at to understand a business’s financial performance and potential.
Always review your P&L regularly. It tells the story of your business’s financial performance and helps you spot issues or opportunities early.
Always review your P&L regularly. It tells the story of your business’s financial performance and helps you spot issues or opportunities early.
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