What is Profit and Loss (P&L) Statement?

A profit and loss statement is a financial report that shows how much your company spent and earned during a specific time period.

A profit and loss (P&L) statement summarises the revenues, costs, and expenses incurred during a given period, which is usually a quarter or fiscal year. These records reveal a company’s worthiness or unworthiness to generate profit through increased revenue, cost reductions, or both. P&L statements can be presented in cash or accrual format. P&L statements are used by company managers and investors to assess a company’s financial health.

Profit and loss (P&L) statements are important because many businesses are required to complete them by law or by association membership. A profit and loss statement also assists a company’s management team (including its board of directors) in understanding the net income of the business, which may be useful in decision-making processes. For example, a business owner may consider whether his or her company is profitable enough to justify renovating or expanding in other ways.

P&L statements and financial statements must be filed with the US Securities and Exchange Commission (SEC) by publicly traded companies so that they can be scrutinized by investors, analysts, and regulators. When preparing these statements, businesses must follow a set of rules and guidelines known as generally accepted accounting principles (GAAP).

Private companies, on the other hand, are not always required to follow GAAP. However, some smaller businesses may not even prepare formal financial statements.