An important part of operating a business is keeping track of its expenses and income, so you can always know your business’s financial position. One of the most common documents used to present this information is a profit and loss (P&L) statement, which can show these figures over periods ranging from a month to a year. Below, we will explain the different sections of a P&L statement that a business owner must be aware of.
The first part of the statement shows the money that a business takes in over the given period of time, with a distinction made between gross profit and revenue. Gross profit details the money a business generates before operating expenses, losses, or other expenses are subtracted. Revenue is the income your business makes from sales, extra fees, royalties, etc.
Also shown on the statement are the costs of goods sold (COGS) and operating expenses. The COGS is the amount of money it takes for a sale to occur, including the materials that are required beforehand and the labor process to develop the product. The operating expenses are similar, but focus on the expenses that are required for operations to continue on a daily basis, such as salaries of employees or the utilities bill.
Toward the bottom of the statement is where you may find other income or expenses that might not fall into the two categories mentioned above—which can include income that isn’t considered revenue. Below this, there will be a net profit/loss. This is the total that identifies whether a business made a profit or took a loss over the designated period of time, which indicates the direction of finances.
For more information regarding a P&L statement, be sure to contact us with any questions you might have! We can help clarify information you find confusing and pinpoint any areas that need more attention. To get in touch with our office, please call, email, or fill out the form on our website.