What Is A Profit And Loss Statement And Why Is It Important For Your Business?

Do you need help to make sense of all the numbers and jargon that come with it? Fear not, my friend, for I, your friendly bookkeeper, am here to break it down for you in a way that’s easy to understand.

So, what is the purpose of a profit and loss statement? Simply put, it’s a financial report that tells you whether your business made a profit or a loss during a specific period of time. It’s also known as an income statement, which is a bit more self-explanatory. Think of it as a report card for your business’s financial performance. Just like you need grades to determine how well you’re doing in school, you need a P&L statement to determine how well your business is doing financially.

This handy report comprises two main sections: revenue and expenses. Revenue refers to the money your business earns from selling goods or services, while expenses refer to the costs incurred in running your business. The difference between the two totals is your profit or loss. If your revenue is higher than your expenses, you have a profit. The other way, you’re losing money.

I probably don’t need to tell you that this is important. We all want our businesses to make money. The P&L shows in a straightforward report if you need to cut back on expenses or book that cruise.

The P&L statement can also help identify patterns in revenue. For example, maybe you have greater sales during the summer or more expenses in the winter. The P&L can help determine that.

With accounting software like QuickBooks, a Profit and Loss statement is easy to put together, and with a little study and the help of your accountant or bookkeeper, you can make informed decisions that will help you grow and succeed.