Profit And Loss Statement Flashcards, test questions and answers

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What is Profit And Loss Statement?

A Profit and Loss Statement (also known as an Income Statement or P) is a financial report that summarizes a company’s revenues, expenses, and profits/losses over a specified period of time. The statement helps owners, investors, and creditors assess the financial health of the business and make informed decisions about its future.The Profit and Loss Statement begins with revenues generated from sales or services. These can include sale of goods and services, fees from customers, interest income on investments, etc. Then it lists all the costs associated with generating those revenues such as cost of goods sold (COGS), wages/salaries paid to employees, rent/utilities for offices etc. Once all these items are subtracted from total revenue you get the bottom line figure called Net Profit or Net Loss depending on whether it is positive or negative.The P&L report also includes non-operating items such as gains/losses on investments in other companies, taxes paid to government authorities etc., which are not directly related to running the business but still have an impact on profitability. All these figures together give a complete picture of how profitable the business has been during that period so stakeholders can make decisions accordingly. The P&L statement helps stakeholders understand how efficiently resources have been utilized to generate profits for shareholders allowing them to decide whether they should continue investing in it or not. It also gives information about upcoming cash flow needs which allows them to determine their next steps like cutting down unnecessary expenses or increasing marketing efforts if required in order to boost sales & profits further thus helping keep track of their long term goals & objectives for the company’s success & growth.