Knowing your business’s financial health is key to budgeting, decision making, and implementing change. You can learn about your finances by using financial statements.
To find out your company’s net profits during a specific time, use the income statement or P&L. What is the difference between income statement vs. P&L?
P&L vs. income statement
P&L is short for profit and loss statement. A business profit and loss statement shows you how much money your business earned and lost within a period of time.
There is no difference between income statement and profit and loss. An income statement is often referred to as a P&L. The income statement is also known as statement of income or statement of operations.
Now that we’ve answered the question surrounding income statement vs. profit and loss, we can address the importance of this statement, as well as how it differs from the other financial statements.
Since profit and loss vs. income statement are actually the same, the terms will be used interchangeably throughout this article.
About the income (P&L) statement
Use the P&L statement to summarize monthly, quarterly, or annual operations. The information can show you where your money is going. Investors and lenders want to see your income statement to assess your business’s risk. And, your accountant can provide financial expertise based on your statement.
You can also use the statement to measure profitability by calculating business financial ratios, like the profit margin and gross margin ratios, from the financial data.
The necessary parts of an income statement include revenues, expenses, and the net profit/loss.
Revenues, or income, are amounts earned from primary business activities, like product sales, or other financial gains. Expenses include amounts you paid, like the cost of goods sold. The bottom line of the income statement is the net profit or loss, depending on if your revenues are more or less than your expenses.
The title of the income statement will vary depending on the period you want it to cover. Here are some examples of titles you could use:
- For the Six Months Ended June 30, 2017 (January 1 – June 30)
- The Fiscal Year Ended December 31, 2017 (January 1, 2017 – December 31, 2017)
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P&L statement vs. other financial statements
The income statement might be the same as the P&L, but it is different from the other financial statements. There are three main financial statements, including the income statement, balance sheet, and cash flow statement.
The income statement summarizes income and expenses. The balance sheet shows assets, liabilities, and owner’s equity. The cash flow statement summarizes your incoming and outgoing money from operations, investing, and financing.
Income statement vs. balance sheet: The income statement answers whether the business is profitable whereas the balance sheet shows what a company is owed and what it owns.
The income statement shows information during a set period of time. On the other hand, the balance sheet shows the company’s financial position during a specific point in time.
P&L statement vs. cash flow statement: Unlike the income statement, the cash flow statement summarizes where cash comes from as well as where cash goes. The cash flow statement is affected by late paying customers—if someone does not pay, you will have less cash on hand during that time period.
You can create a cash flow statement in one of two ways: indirect or direct. If you use the indirect method, you need to use your income statement’s net profit or loss. The last line of the income statement is the first line of the cash flow statement.
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This article is updated from its original publication date of December 8, 2017.
This is not intended as legal advice; for more information, please click here.
FAQs
A profit and loss (P&L) statement, also known as an income statement, is a financial statement that summarizes the revenues, costs, expenses, and profits/losses of a company during a specified period. These records provide information about a company's ability to generate revenues, manage costs, and make profits.
Is an income statement the same as a P&L? ›
Fortunately, the answer to this one is exceptionally simple: Yes, they're the same thing. With that in mind, we'll be using the terms profit and loss (P&L) and income statement interchangeably from here on out.
What are the 3 financial statements? ›
The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.
What is difference between P&L and balance sheet? ›
Here's the main one: The balance sheet reports the assets, liabilities, and shareholder equity at a specific point in time, while a P&L statement summarizes a company's revenues, costs, and expenses during a specific period.
Is the statement of earnings the same as the profit and loss? ›
An income statement shows a company's revenues, expenses and profitability over a period of time. It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement.
What does a P&L statement show? ›
A profit and loss statement includes a business's total revenue, expenses, gains, and losses, arriving at net income for a specific accounting period. Management analyzes a P&L to determine how to increase profitability by increasing revenue, lowering costs or both.
How do you read a P&L for dummies? ›
The P&L statement is made up of three components: revenue, expenses, and net income. Revenue is the total amount of money that a company brings in from its sales. Expenses are the costs incurred by a company to generate revenue. Net income is the difference between revenue and expenses.
What is the income statement for dummies? ›
An income statement is a financial statement that shows you the company's income and expenditures. It also shows whether a company is making profit or loss for a given period. The income statement, along with balance sheet and cash flow statement, helps you understand the financial health of your business.
What accounts are included in an income statement? ›
The income statement presents revenue, expenses, and net income. The components of the income statement include: revenue; cost of sales; sales, general, and administrative expenses; other operating expenses; non-operating income and expenses; gains and losses; non-recurring items; net income; and EPS.
Which financial statement is the most important? ›
Typically considered the most important of the financial statements, an income statement shows how much money a company made and spent over a specific period of time.
The income statement or Profit and Loss (P&L) comes first. This is the document where the income or revenue the business took in over a specific time frame is shown alongside expenses that were paid out and subtracted.
What are the golden rules of accounting? ›
Every economic entity must present accurate financial information. To achieve this, the entity must follow three Golden Rules of Accounting: Debit all expenses/Credit all income; Debit receiver/Credit giver; and Debit what comes in/Credit what goes out.
Does P&L include accounts receivable? ›
If your company has a huge accounts receivable (AR) balance, on paper you could be making money, but in reality you don't actually have the cash yet. The P&L shows revenue from those sales, but does not reflect when you actually receive payment for those sales.
What is another name for the income statement? ›
The income statement is also known as a profit and loss statement, statement of operation, statement of financial result or income, or earnings statement.
What is another name for the P&L statement? ›
Did You Know? Other names for a P&L statement include income statement, earnings statement, revenue statement, operating statement, statement of operations and statement of financial performance.
What are other names for P&L statement? ›
An income statement or profit and loss account (also referred to as a profit and loss statement (P&L), statement of profit or loss, revenue statement, statement of financial performance, earnings statement, statement of earnings, operating statement, or statement of operations) is one of the financial statements of a ...
Why is an income statement considered a profit & loss statement? ›
A profit and loss statement, also called an income statement, is a report that shows your revenues, expenses, and net income for a given period. It's important to note that the term "net income" can also be referred to as "net profit" or "bottom line."
