Write about profit and loss(P/L) on financial statement.

Profit and loss statement tells about company’s revenues and expenses in a particular period. It tells whether, company gets profit or loss through cash flows. To invest in company investors will look for financial strength of the company. Profit and loss statement serve as one of the instrument to check financial strength of the company.

Information required to prepare profit and loss statements is given below −

  • All business transactions.
  • Petty cash & cash receipts.
  • Source of income.
  • Discounts or returns (if any).

Common terms in profit and loss statements are mentioned below −

  • Revenue − It includes total sales, cash from property/ equipment sales and refund on taxes.
  • Expenditures − Total business expenditures.
  • Cost of goods sold − Includes material cost and production time.
  • Gross profit − Cost of goods sold minus revenue.
  • Operating expenses − Any cost associated with business which are not listed in cost of goods sold.
  • Depreciation − Equipment, machinery etc. will decrease their value over the time.
  • EBIT − It is also called as operating profit or Earnings before interests and tax.
  • EBT − Earnings before tax. Revenue minus COGS, OPEX, Depreciation/amortisation
  • Dividends.
  • Owners − Salary taken by owner from revenue.
  • Net income − Finial amount after all deductions to decide whether it’s a loss or a profit.