What is a Profit and Loss Statement?
The Profit and Loss Statement is the use and analysis of financial statements within companies are essential due to these accounting documents’ information. Their lack of use can often be detrimental to any business. However, ordinarily small entrepreneurs, if they develop it, never arrive to find out the correct procedures for your presentation.
What is the Income Statement?
Also famous as Statement of Income, Statement of Income and Expenses, or Statement of Performance; The profit and loss statement is a financial report that shows the company’s profitability during a given period, that is, the profits and losses that the company has obtained or expects to have.
It defines as an accounting document in which the company’s activity reflects in detail. That is, it contains both the profits generated by the business and its losses.
Thanks to this information, it is possible to make radical decisions and analyze your business’s life and growth possibilities in the long, medium, or short term. Within the profit and loss statement, two essential characteristics of any business evaluate:
- Income: as its name indicates, it is what enters or enters the company, that is, the income generated by sales. Income must remain itemized on the income statement to determine its actual value in the business. Depending on the type of company or its business model, sales or income can remain grouped into national, international, credit, and cash.
- Expenses: these are the expenses incurred by a company or business. Expenses divide into:
However, Expenses are the cost incurred in developing the product or service, for example, the raw material with which the final product is complete.
Costs: when the company incurs expenses that can generate a profit or converted into an asset, for example, the purchase of commercial premises, which is an asset, but it is not my business or main activity and which will not be spending.
- Other non-operating income/expenses: are the expenses or income generated by a source other than the company’s operations. For example, a company that offers professional services also participates in other activities that create investments or complementary profits, such as participating in purchasing shares.
- Profits: the profitability obtained by a company is analyzed by crossing the income and expenses. If the result is positive, that figure will be the profits or profits of the business.
Analyzing the profit and loss statement is essential to know about the competitiveness of the company and its transition to growth. In this way, you can focus more on the actions you want to take for the prosperity of your business.
On the one hand, we have the losses and, on the other hand, the gains:
They refer to a decrease in the assets of the company. It means that there are adverse movements of their capital, seen from the support and rights. In conclusion, these will remain used to refer to situations with negative results of accounting movements related adequately to expenses and income when income is less than expenses.
These differ from losses since they will generate positive results for the company. They finally visualize when total annual sales or services minus the costs of producing them, including taxes, develop positive capital movements.
Finally, by analyzing the company’s financial information, we find relevant information to make decisions.
The income statement as a financial report will identify the company’s efficiency, which means check how profitable it is. To know the profitability of this, you must see the final result of the report, which reflects whether there was a loss or profit.
Accounting, this report is made in a specific period and will depend on the company. Either by its size or the business line. Most of the time, it determines once a year. However, some companies do it on a quarterly or semi-annual basis.
The information to stay analyzed will remain your financial situation. According to the accounting movements related to income, costs, and expenses. To decide the future of the same and the returns on the investment.
Also Read : Innovation Management: Methods, Importance and More
Review Profit and Loss Statement: Definition, Income, Earnings, and More.