What is a profit and loss statement? A profit and loss statement helps to determine the financial performance of a business on a monthly, quarterly or annual basis. It helps to keep a track of all expenditure incurred and income earned in the business.

One of the things that a profit and loss statement can do is to compare the current year’s income and expenditure to that of the previous year. This clearly shows the past performances of the particular business in relation to the current year, and how it is doing now.

Are Profit and Loss statements useful?

A profit loss statement analyses the income for a specific period and subtracts the expenses incurred for the same period to calculate the profit or loss for the business.

The area called Sales in the balance sheet of a profit and loss statement lists each particular customer and how much they paid into the business in revenue.

In order to operate the business, there is a list of expenditures in the business known as Operating Expenses which includes wages, the products/raw materials that it has to buy in order to conduct business, and any shipping expenses.

The total amount the business profits during a specific time can be termed the Net Profit. The profit earned or the loss incurred can determine if the business is performing well or not.

Depreciation exists mainly for the tax purposes and it is used to show the overall value of the business in its current sale as the businesses must show the diminishing value of the equipment and supplies.

There may be other income and expenses that are usually the payments in and out of the business during the day to day period of time including the buying and selling of property or interest earned.

Benefits of Profit and Loss statement
  • It helps you to know how much income you are earning and the profit you are making
  • Helps to compare your projected performance to your actual performance
  • Compares your performance with industrial benchmarks
  • Past performance tends to form reasonable forecasts for the future
  • It shows your business growth and financial health over a period of time
  • Detects any problem regarding sales, margin and expenses within a reasonable time
  • Provides proof of income in case one need loans or mortgage; and
  • Calculates your final income and expenses when completing and submitting your tax return
Entrepreneurial Learning

The profit and loss statement is the most important statement to any business. It is the document which determines the performance of the company in terms of finances. It is through this that the owners of the company find out if they are incurring a loss or making a profit. This statement is very helpful as it sets a sort of benchmark for you better your performance.

Leave a Comment

Your email address will not be published.

You may also like

Growing a Business

Want Great Guidance ? Find yourself a Super Mentor


They are the gods of small businesses, those inspired individuals who have achieved the highest levels of success. They can be the shining beacons who light up the path of running your business with their vision, wisdom and wealth of resources and contacts. They are The Mentors.

If you are fired with the passion to take your business to great heights, the best thing to do is find yourself a super mentor. Here are some tips to help in your quest

Pinpoint your Need

Sit down and focus your thoughts on your business growth strategy. Which area of the business needs a lift. Is is staffing, is it the finances, is it the production, is it the your lack of customers or is it the business as a whole that needs a makeover. Once you’ve zoomed in on the sore spot, this is where you need…

Read More
Growing a Business

Dreaming Big? You can Move Mountains with these Business Productivty Tips


You may be full of admiration for some people who seem to manage themselves and their work so usefully and efficiently. They seem to fit in so much productive work into the same number of hours which everyone has.. Let’s look what makes them tick and take a few tips.

Learn to identify your most productive hours

Its true, most productive people know which time of the day they can be most creative and efficient. They identify and allot these hours for the best part of their work. This way they are able to give their 100% awareness to the job and business productivity.

Early to rise- A winning habit

Waking up early is a personal habit that has all the plusses on its side. You need not necessarily go to work that early. It’s a habit that gives you more time for personal care, like mediation, exercise, walking,…

Read More
Growing a Business

Leadership Qualities that can make you an Icon


You may have reached the leadership position through sheer dedication to performance and a do or die attitude . Now that you are at the top, your viewpoint needs to change. You have to now be a role model, one whom others will look up to and follow. Here are some tips that can shape your leadership and management skills

Be Competent: Employees will look up to a leader who has good industry knowledge and management skills. If you do not possess these skills you should surround yourself with knowledgeable people who can offer good counsel. Competence is a trait all employees will admire.

Be Trustworthy: No one will look up to a person they cannot trust. Your employees will want to rely on you and count on you. In difficult situations, leaders are expected to apprise their employees of the situations and find solutions on how to address…

Read More
Raising Money

Are You offering Your Services Using the Right Pricing Strategies?


In these times of fierce competition, business people , mostly those that offer services and belong to the service based industry, are finding it a challenge to implement the right pricing strategies. It is virtually a struggle to set the right business price that will retain and attract the customers, and not drive them away. Follow these tips, the crucial dos and don’t s and you may be in a much better position to offer your services at the best price.

Maintain your Business identity and Dignity

If you are offering a unique or special product or service, don’t underrate it just because you want to build a better relationship with the customer. This will just cheapen your offering as another run of the mill. If its something special you are offering the customer, then communicate this fact to the client and get the equation right with the most…

Read More
Raising Money

What is a Fair Wage? How Do you Assess Fair Wage?


How do you figure out a fair wage?

This is a very common question for startups and small businesses. They can’t seem to decide or understand how to set wages and manage reputations at a time. They are determined to pay well but they also have to think about encouraging their employees to stay with them for a long time. This is why there is a need to think strategically.

Listed below are a few expert tips to help you decide:

Don’t Focus Only on Money

Money should never be the main focus for you or for your employees. You should decide on the wages in such a way that your employees are tied to your business. When your business does well they should be able to taste that success and vice versa.

Also, think about additional perks such as exclusive benefits and time off. Many employees value this more than the overall…

Read More
Raising Money

Tips to Winning Hard Negotiations With Ease


While some negotiations are easy, others are quite hard to win. If you stumble you will lose.

Whether it is a potential client or an investor, negotiations can be very tough and frustrating. The problem is that the moment you let your frustration overwhelm you, you will lose the deal and you will give in to whatever is being offered to you. In order to avoid that, here are tips to overcome tough times and to win even the hard negotiations:


Know your opponent as well as possible. This is the rule no matter what you do. You should understand your opponent to the T. Who the person is, what his culture is, what he thinks, what he stands for, how is his network, etc. are the questions you should ask yourself and answer through research before meeting up for the negotiation. Understanding the opponent will give you a great advantage.


Read More