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.
Are P&L and income statement the same? ›
An income statement and a profit and loss statement are two names for the same financial report. There's no difference between the income statement vs. P&L. This report may also be called a statement of operations, statement of financial results, earnings statement, expense statement, or operating statement.
What is the difference between a balance sheet and a P&L account? ›
The Balance Sheet reveals the entity's financial position, whereas the Profit and Loss account discloses the entity's financial performance. A Balance Sheet gives an overview of the assets, equity, and liabilities of the company, but the Profit and Loss Account is a depiction of the entity's revenue and expenses.
Is an income statement sometimes called a profit loss statement? ›
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. It shows your: revenue from selling products or services. expenses to generate the revenue and manage your business.
What are the three 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 another name for an 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.
Is there a difference between income statement and financial statement? ›
Financial statements are the ticket to the external evaluation of a company's financial performance. The balance sheet reports a company's financial health through its liquidity and solvency, while the income statement reports its profitability.
What is in an income statement? ›
The statement displays the company's revenue, costs, gross profit, selling and administrative expenses, other expenses and income, taxes paid, and net profit in a coherent and logical manner.
Should the balance sheet match the P&L? ›
The Balance Sheet report shows net income for current fiscal year and it should match the net income on the Profit & Loss report for current fiscal year.
Is a profit and loss account the same as a financial statement? ›
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.
How to Read a Profit and Loss Statement
- Net Sales (or Revenue) – Cost of Sales (or Cost of Goods Sold) = Gross Profit (or Gross Margin)
- Gross Profit – Operating Expenses = Net Operating Profit.
- Net Operating Profit + Other Income – Other Expenses = Net Profit Before Taxes.
The purpose of an income statement is to provide financial information to investors, creditors, and readers, whether the company is profitable during the financial year. In the context of corporate finance, the income statement is the record of the company's profit and loss over the financial year.
What is another name for profit and loss statement? ›
A profit and loss statement (P&L), also called an income statement or statement of operations, is a financial report that shows a company's revenues, expenses and net profit or loss over a given period of time.
How to tell if a company is profitable from a balance sheet? ›
The two most important aspects of profitability are income and expenses. By subtracting expenses from income, you can measure your business's profitability.
Which financial statement is the most important? ›
Types of Financial Statements: Income Statement. 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.
What items appear on the income statement? ›
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.
Is the profit and loss account called the income statement? ›
A profit and loss statement (P&L), also called an income statement or statement of operations, is a financial report that shows a company's revenues, expenses and net profit or loss over a given period of time. The time period can be of any length, but it is usually a month, quarter or year.
What are the different 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 ...
What is the income profit and loss statement? ›
It is a financial statement that provides a snapshot of how much your company is making (revenue) compared to how much is being spent (costs and expenses). Simply put, your P&L shows your business's revenue minus costs and expenses, typically over a specified period. The outcome is your net profit or bottom line.
