What is a profit and loss statement or Income Statement? Definition with Examples 1


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Profit and Loss Statement Definition:

Under financial accounting, “profit and loss account, statement of revenue or loss, financial performance statement, operating statement, earnings statement, statement of profit and loss, P&L statement, Income statement all this terms refers to Profit and Loss statement of the financial reports”. This statement shows the revenue and expenditures of a business during an accounting year. Primary purpose of preparing income statement is to present summary of profit and loss of the business or an organisation to the members directly or indirectly linked with business. For example: Entities like Investors, Banks, Competitors, Board of directors, shareholders are concern about overview of profit or loss of the business for various objectives.

There are institutions like non-profitable organizations or a charitable organization does not intend to prepare income statement. Since their motto of the business is not to earn profits or showcase earnings. Perhaps these intuitions prepare statement which summarizes information related to source of funds and expenses incurred for various programs or initiatives. Such statement is known as “statement of activities”.

There are two methods of preparing income statement. First one is the simple procedure subtracting expenditures from income to evaluate profit or loss for a specified period. Else second procedure is to first calculate gross profit, then evaluate general and operating expenses, then calculating operating profit, then profit before taxes and lastly profit after taxes to summarize net income of the business.


Example of Profit and Loss Statement:

Let us take an example of income statement / profit and loss statement to further understand:

P&L / Profit and Loss Statement Example: Simple Method:

XYZ Textile India Pvt. Ltd.

Income Statement / Statement of Profit and Loss

P&L statement for the current assessment year.
ParticularsDebit (Rs.)Credit (Rs.)
Revenues:
Gross Profit5,20,000
 
Expenses: 
Advertising11,500 
Bank Charges & Other Fees5,344 
Bookkeeping Salaries7,550 
Sub-Contractors93,200 
Entertainment expenses10,750 
Insurance Premium5,950 
Professional and Legal Charges6,775 
Postage payments5,832 
Printing and Stationery expenses5,520 
Rent paid18,200 
Material Costs79,600 
Telephone and Mobile Bills6,200 
Utilities6,691 
 
Net Expenses-2,63,112
 
Net Income (Net Profit / Loss)2,56,888

Wiki Finance pedia - e-learning course on Accounting Wikipedia Chapter - Learn about profit and loss statement - Income Statement - P&L statement


P&L / Profit and Loss Statement Example: Advanced Method:

PQR Petroleum India Pvt. Ltd.

Statement of Income / Profit and Loss Statement

P&L statement for the current assessment year.
ParticularsRs. in ‘000Rs. in ‘000
Sales50,000
Cost of goods sold-2,500
Other sales costs-1,500
Gross Profit46,000
Overhead expenses-1,000
Other expenses-5,000
Operating Profit and Loss 40,000
Interest Charges-500
Net Profit (before Taxes)39,500
Taxation-4,000
Net Profit after Taxes35,500

- Tutorial Course - Basics of Accounting for Beginners -

» e-Learning Chapter 1: What is Accounting and objectives of Accounting?

» e-Learning Chapter 2: What is Assets and Current Assets?

» e-Learning Chapter 3: What is Liability and Current Liabilities?

» e-Learning Chapter 4: What is Revenue and Expenses?

» e-Learning Chapter 5: What are the Types of Accounts?

» e-Learning Chapter 6: What is a Single Entry System?

» e-Learning Chapter 7: What is Double Entry Accounting System?

» e-Learning Chapter 8: What are the steps involved in Accounting Process Cycle.

» e-Learning Chapter 9: What are Journal Entries? Format and Examples.

» e-Learning Chapter 10: What Is a General Ledger? Format with Example.

» e-Learning Chapter 11: What is a Trial Balance? Examples and Limitations.

» Currently Reading: What is a profit and loss statement or Income Statement?

» e-Learning Chapter 13: What is a Balance Sheet? Definition, Format and Examples.

» e-Learning Chapter 14: What are the Different Types of Accounting Methods in Bookkeeping.

» e-Learning Chapter 15: Accounting Quiz – Basics of Accounting for Beginners Module.


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One thought on “What is a profit and loss statement or Income Statement? Definition with Examples

  • Jimmy Smith

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