profit and loss account

profit and loss account or profit and loss statement

Fin

the summary record of a company’s sales revenues and expenses over a period, providing a calculation of profits or losses during that time.

Abbr. P&L

EXAMPLE

Companies typically issue P&L reports monthly. It is customary for the reports to include year-to-date figures, as well as corresponding year-earlier figures to allow for comparisons and analysis.

     There are two P&L formats, multiple-step and single-step. Both follow a standard set of rules known as Generally Accepted Accounting Principles (GAAP). These rules generally adhere to requirements established by governments to track receipts, expenses, and profits for tax purposes. They also allow the financial reports of two different companies to be compared.

     The multiple-step format is much more common, because it includes a larger number of details and is thus more useful. It deducts costs from revenues in a series of steps, allowing for closer analysis. Revenues appear first, then expenses, each in as much detail as management desires. Sales may be broken down by product line or location, while expenses such as salaries may be broken down into base salaries and commissions.

     Expenses are then subtracted from revenues to show profit (or loss). A basic multiple-step P&L looks like this:

     P&Ls of public companies may also report income on the basis of earnings per share. For example, if the company issuing this statement had 12,000 shares outstanding, earnings per share would be $5.12, that is, $61,440 divided by 12,000 shares.