What is profit and loss statement (P&L)? Definition

Table of Contents

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.
Particulars	Debit (Rs.)	Credit (Rs.)
Revenues:
Gross Profit		5,20,000

Expenses:
Advertising	11,500
Bank Charges & Other Fees	5,344
Bookkeeping Salaries	7,550
Sub-Contractors	93,200
Entertainment expenses	10,750
Insurance Premium	5,950
Professional and Legal Charges	6,775
Postage payments	5,832
Printing and Stationery expenses	5,520
Rent paid	18,200
Material Costs	79,600
Telephone and Mobile Bills	6,200
Utilities	6,691

Net Expenses		-2,63,112

Net Income (Net Profit / Loss)		2,56,888

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.
Particulars	Rs. in ‘000	Rs. in ‘000
Sales		50,000
Cost of goods sold	-2,500
Other sales costs	-1,500
Gross Profit		46,000
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 Taxes		35,500