A profit and loss statement, or P&L, has many other names. It is known as a statement of operations, earnings states, expense statement, and income statement. A P&L shows all of the company’s revenue and expenses over a given period. It shows you exactly how profitable the business was or how much it might have lost. Some of the main categories found on a P&L are:
- Cost of Goods Sold
- Marketing & Advertising
- Interest Income
When Should You Prepare a Profit and Loss Statement?
When filing your business taxes, this form will be used to help calculate what income tax you will pay based on how much the company made. Most small businesses will prepare a profit and loss statement for every quarter. You will also likely prepare a yearly statement.
What’s The Point of Preparing a P&L Statement?
First, it gives management a big picture understanding of the company’s finances, and when it comes to making key decisions that are critical. For example, if you’re considering expansion, looking at the profit and loss statement can tell you whether or not you have the money to expand. If you ever apply for business funding, a lender will ask for this statement to evaluate your company’s profitability. They would easily find out if you have the money to repay a loan.
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