What is profit and loss statement?

The profit and loss statement – also known as the P&L- is the overview of all revenues and costs of a certain period. This period mostly covers one year, called fiscal year.
The P&L shows you if a profit or loss has been made over the previous period:

  • Positive result = profit
  • Negative result = loss

The result is calculated by subtracting the cost from the revenues: Result = Revenues – costs

When reading a P&L, keep in mind that each number in the document is an answer to one of these two questions:

  • How much income was generated?
  • Which costs were needed to do this?

Later on, in the next topics we’ll discuss several kinds of result: the operational result, the financial result and the exceptional result.

As we will explain below, a profit increases the (internal) equity, a loss diminishes the (internal) equity.

Structure of the profit and loss account

Below we give an overview of the structure of a P&L account. The operating expenses and -income give an overview of all costs and revenues directly related to the operational activities.  Operational activities are those activities that are directly involved in creating the good or service that the company is selling. The operating result shows an important part of the result but not the final result. For that, we need also to take into account the financial and exceptional result.