A profit and loss statement, also known as an income statement, is a financial report that summarizes the revenues, costs, and expenses incurred by a business over a specified period of time, usually a quarter or fiscal year. It shows how much a business has spent and earned over that time, and whether it has made a profit or a loss. The statement can cover any period of time, although it’s most commonly prepared at the end of a month, a quarter, or a year.

A profit and loss statement is one of the three types of financial statements prepared by companies, the other two being the balance sheet and the cash flow statement. It is important to compare P&L statements from different accounting periods, as any changes over time become more meaningful than the numbers themselves. Company managers and investors use P&L statements to analyze the financial health of a company.

Key components of a profit and loss statement include:

• Revenues: Money earned from sales, including credit sales that customers may not have paid yet.
• Expenses: Bills for expenses that a business has incurred but not paid, such as payroll, advertising, rent, and insurance.
• Gross profit: The difference between revenues and the cost of goods sold.
• Operating expenses: Expenses incurred in the course of regular business operations, such as salaries, rent, and utilities.
• Net profit: The total amount earned after deducting all expenses.

Analyzing a profit and loss statement can help business owners and accountants investigate revenue and expense trends, net income, and overall profitability to then allocate resources and budgets accordingly. It can also be useful for filing a tax return with the IRS to assess taxes on business profits.