https://www.completecontroller.com/wp-content/uploads/cclogo_main-long-300x63.png 0 0 Complete Controller https://www.completecontroller.com/wp-content/uploads/cclogo_main-long-300x63.png Complete Controller2017-06-28 07:30:422017-10-31 17:13:13Profit and Loss Statement/Income statement- What you need to know
A Profit and Loss Statement, otherwise known as an Income statement, is a quarterly statement that summarizes revenues and costs to determine overall success and growth.A Profit and Loss Statement (P&L) has many different names: Income Statement, Statement of Operations, Statement of Financial Results, and Income Expense Statement. For the purpose of this article, we will be referring to it as a Profit and Loss Statement. Every public company must submit a quarterly and yearly P&L statement for its shareholders. On the contrary, if your company is privately owned, it is still a vital piece of information necessary to look at your company’s growth. A P&L statement is formal statement that includes your company spends, how much your company makes, and what that means for you. In this article we will answer the following questions, “What is a P&L statement, What is the difference between a P&L statement vs. a Balance Sheet, and What is the proper Format for a P&L statement”.
What is a Profit & Loss Statement?As stated before, a P&L Statement is a statement shared with the public (or for personal use if your company is private), that helps you look at your company’s revenue in comparison to its expenses. As you may know by now, there are several different factors that a company must take into consideration when it comes to their expenses. Are you spending too much? Are you not spending enough to increase revenue? These are the questions answered by creating an in-depth P&L statement. The P&L statement is 1 of 3 statements that companies release, along with a Balance Sheet, and a Cash Flow Statement. The idea of a P&L statement is not only to look at the state of a company at any given time, but also to compare it with P&L statements from previous years. This is how you will know whether, this year, your company is creating more revenue, remaining stagnant, or decreasing.
Profit & Loss Statement vs. Balance SheetMany people confuse a Profit & Loss Statement with a Balance Sheet. Not to fear! The two are different, but work as a team. As stated before, a Balance Sheet, as well as P&L Statement are 2 of 3 statements a company will release every quarterly period, therefore they go together, but include different data. Simply put, a Balance Sheet is a “snapshot”, as many call it, of a company’s assets & liabilities. Otherwise known as, what the company owns, and what they owe, at any given moment. People who are most interested in this information are investors and creditors. Creditors in particular, so they can determines whether or not a company qualifies for a loan or additional credit. A P&L Statement, on the other hand, is an overall account for every expense and profit that comes into play in determining a company’s overall success in that period.
Format of a Profit & Loss StatementThere is no “official” format for a P&L Statement. However, there are categories that must be included: Sales and Revenues, costs (operating/supplies/tax expense/interest expense), and net profit. Think of the Format for a P&L statement like a math equation. Revenues – Cost = Profit. Here, we will take a look at each.
Revenues and SalesRevenues and Sales is known as the “top line” of the P&L statement. It is the top line simply because it is what you will be subtracting from. This category should be broken down into subcategories depending on what your company looks like and the products it offers. Subcategories of Revenues and Sales is determined by how many types of services or products your company offers or both. At the end, you will have the last subcategory labeled “total sales”, which is the total of all of your sales.
CostsThis is the meat of your P&L statement. This needs to be sub categorized by every type of cost your company has:
- Cost of manufacturing/Cost of maintaining supplies
- Cost of operations (can be further broken down by office supplies, payroll, etc.)
- Cost of interests (loans)