What is a Profit and Loss Statement?

Definition: The profit and loss statement shows the profit or the loss of a business during a certain time period.

The profit and loss statement allows you to view the net profit or the net loss of your business during a particular accounting period, after the deduction of all income expenditure.

Net profit is made if the total expenditure of your business is less than its sales.

Conversely, net loss is if the total expenditure of your business is greater than its sales.

Measuring success

We all know that one of a business's main objectives is to earn a profit. The profit and loss statement provides an overview as to whether or not a business has succeeded in achieving this goal.

Businesses need to prepare their profit and loss statements in certain formats. Most commonly, the profit and loss statement shows a business's revenues the costs that were accrued while generating this revenue.

In general terms:

REVENUE - COST = PROFIT

Both the profit and loss statement and the balance sheet are incredibly important financial statementa for an organization.