While the balance sheet gives you a snapshot of your business’s finances, the profit and loss statement gives you insight into how your business has done over a period of time.
Profit and Loss Statement
The profit and loss statement can go by several other names, such as income statement, or revenue statement. These are all the same thing.
You can use your profit and loss statement to figure out if you made or lost money over a certain period, and you can create a profit and loss statement for different periods, such as a month, quarter, year or multiple years.
The profit and loss formula is:
- Profit (also called net income) = income (also called revenue) - expenses
Your profit and loss statement should break down your sources of income or expenses, which can help you understand where your business is making or losing money.
For example, if you notice your expenses for repairs and maintenance are increasing month after month, you may want to consider investing in brand new equipment. Or, if your sales start to decline, perhaps it’s time to reexamine your marketing campaign or which products and services you’re selling.
The profit and loss page has a detailed breakdown of the different terms you may find on a profit and loss statement.
You can also use this template to get started making your own profit and loss statements.
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