Profit and Loss

Familiarize yourself with some of the terms and definitions that are used in this financial tool.

Business costs or expenses: Business costs, also called business expenses, are all the costs associated with running a business. These could include fixed expenses, which stay the same from month to month, such as rent, salaries and insurance. Many businesses also have flexible expenses, which change from month to month, such as payroll or supplies.
Cost of goods sold: The cost of direct labor and direct materials used to create a product or complete a service.
Expenses: Money that a business spends. Many businesses have a variety of one-time expenses, such as purchasing equipment, and ongoing expenses, like utility payments or rent.
Gross income/profit: Sales (i.e., revenue) minus the costs of goods sold.
Income statement: One of the three important financial statements used for reporting a company's financial performance over a specific accounting period, along with the balance sheet and the statement of cash flows. Also known as the profit and loss statement or the statement of revenue and expense, the income statement outlines a company’s revenues and expenses during a particular period.
Negative cash flow: When more cash leaves a business than comes into a business. Having negative cash flow could be a sign that a business will have trouble paying for future expenses.
Net profit: Also known as income, profit and net profit after taxes. The net profit is the total amount of money a business earns after paying all its expenses.
Net profit before taxes: A business’s profit minus operating expenses before paying federal, state and local income taxes. Sometimes called profit before tax or PBT.
Positive cash flow: When a business has more money coming in (revenue) than going out (expenses).
Profit and loss (P&L) projections: A forecast of how much money a business expects to bring in by selling its products or services, and how much profit it expects to make from these sales.
Revenue: The income a company generates before any expenses are taken out.

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