Profit And Loss Flashcards, test questions and answers
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What is Profit And Loss?
Profit and loss (P) is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period of time. It is also known as an income statement or a statement of operations. The purpose of this document is to provide an overview of a company’s financial performance over the course of one fiscal year. It helps investors, creditors, and management to evaluate how successful the business has been in generating profits from its activities.The first part of P&L includes all sources of revenue generated by the firm. This includes sales from goods and services, interest earned on investments, dividends received from stocks held in portfolio, gains arising out any sale or exchange transaction such as mergers & acquisitions etc., royalties received through licensing agreements etc., these are all considered as ‘inflows’ for P purposes. In addition to this other non-operating items like foreign exchange gains/losses due to currency fluctuation should also be included in this section while preparing P statement. The second part contains details about cost associated with running the business which includes cost of sales/inventory purchased for resale or manufacturing process; personnel related charges like salaries (including payroll taxes), employee benefit programs such as health insurance premiums etc., direct operating expenses including rent payments for leased office space; administrative expenses such as depreciation on fixed assets used by organization; research & development expense etc.; marketing expenditure for promotion campaigns; finance costs incurred by borrowing funds; any bad debt expenses written off due to uncollectible accounts receivable etc., are all taken into account here while constructing profit and loss report . Finally net income /loss figure emerging after subtracting total expenses from total revenues gives us true picture about profitability position of firm at end date mentioned in particular reporting period referenced in P report . If overall number appearing at bottom line turns out positive then it implies that owners have earned some money (profit) but if final outcome comes negative then it means that operation suffered losses which hurts both shareholders value + reputation within industry .