As always, we share accounting knowledge in a practical way and not focussing on academic accounting theories. If you’re looking for more academic perspectives on these topics, we suggest checking out far more detailed resources on the web 🌐.
What Is a Profit and Loss Account?
The Profit and Loss account (P&L), or the Income Statement to our friends from across the pond, is one of three core financial statements that provide vital information on the health and potential of a business. The P&L indicates the profit (or loss) from business transactions over a time period.
They summarise the financial activity reading from the top-down like a funnel, we start with revenue at the top and the profit at the bottom. There are three sections of a P&L:
- revenues (income);
- expenditures (both indirect and indirect costs—more is coming on that later);
- and the difference between the two
The difference between revenues and expenditures gives you your company profit, and a key measure of the value that is created to the Shareholders.
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