Profit and Loss Statements Explained

Profit and Loss statements, also known as income statements may sound complicated, but not to worry, once you grasp the meaning of gross and net income, you are well on your way to understanding income statements.

But before we get into the actual statement, let's go over some basic terminology you should know before you create your income statements.

Click on the following links, make sure you understand these terms, and then come back here to continue.

Gross vs Net Income

Cost of Goods Sold

Expenses

Chart of Accounts

Now that you understand the difference between gross income and net income, the income statement simply tells us the gross income less any cost of goods or expenses to equal the net income you received for a given period of time.

In other words, it tells you what income you have received, how much of that income was expensed operating your business and how much income you have left at the end of the given period. The net income is then transferred to the balance sheet as equity.

Your income statement can be calculated based on an accrual or cash basis. Click here to find out more about cash vs accrual accounting.

Sample Income Statement

To better understand the income statement, click here to review a sample statement.

Types of Income Statements

For more information on each of the following statements, click on the link for a detailed analysis of what information that statement provides.

P & L Summary

P & L Detail

Income Statement vs Budget Comparison

Profit and Loss Year to Date Comparison

Income Statement by Customer Job

Return from Profit and Loss Statements to Stress-Free-Bookkeeping HomePage