What is the profit and Loss statement?
The P&L statement or the profit and loss statement is one of the key financial statements prepared for a company. Otherwise known as the income statement, it is one of the most important financial statements a company issues. This is because it provides a snapshot of the company’s financial situation over a span of time. It is typically calculated for a year or a fiscal quarter. You can find the P&L in the annual financial reports that publicly traded companies must issue and distribute to shareholders as per the law.
A typical annual financial statement comprises the balance sheet, P&L statement and a statement of cash flow. Company’s put up their financial statements on their websites.
What is present inside a P&L statement?
The P&L (profit and loss) statement is often placed at the front of a business plan because it shows how much profit or loss a business generated over some time. The P&L statement, like the income statement and cash flow statement, tells a company’s story by showing changes in the financial accounts over a given period. The balance sheet is different from the income statement because it lists a company’s assets, liabilities, capital, and owner’s equity at a single point in time.
The P&L statement should be reviewed with the cash flow statement to avoid problems with the accrual method of accounting. This is because in this method of accounting the revenue and expenses are mentioned in the P&L statement before any cash payments are made.
The general structure of the P&L statement begins with the top line which shows a company’s gross revenues or sales. Below the top line, the company’s cost of doing business is present and this figure is subtracted from the gross revenue. The cost of doing business typically includes things like operating expenses, cost of labour and material, tax expenses, cost of goods sold and interest expenses. After this, the bottom line is mentioned which is the net income of the company. It is calculated by subtracting the costs of doing business from the revenue. It shows a company’s earnings or profit.
Why are P&L statements important?
The income statement and balance sheet are both very useful in determining the viability of a company because they both offer a very straightforward look at whether or not a company is successful and if it has enough assets to pay off the liabilities that it has accrued. However, both of these financial statements have one main limitation: they do not show you if a company is growing or shrinking.
Profit and loss statements can help you understand how a company is performing. So whether you are doing your research on KFC franchise cost in India or have finalized the d mart franchise cost you can record it all in this statement and can audit and review it in the future. Click here for more info on the franchise business’ P&L statement specifics. For an entrepreneur considering starting a company, these documents can be a key source of information when determining whether the business will generate positive, or negative, earnings. For an established business owner, they provide helpful insights into the financial state of the company. If a profit and loss statement is accompanied by a balance sheet, it provides even more telling statistics.