An income statement, sometimes referred to as a profit and loss statement or P&L account, is an essential financial document that summarizes a business’s receipts, outlays, and earnings for a given time frame. For creditors and investors to evaluate a company’s historical performance and forecast its financial results, this statement is crucial.

What Makes a Profit and Loss Statement Structured?

Regarding the debit side:

1. Gross Loss (from Trading Account)
2. All Indirect Expenses

Regarding the credit side:

1. Gross Profit (from Trading Account)
2. All Indirect Revenues

Which parts make up the P&L Statement?

1. Revenue/Sales: Total income from sales of goods or services.
2. Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold.
3. Gross Profit: Revenue minus COGS.
4. Selling, General, and Administrative Expenses (SG&A): Overhead and operational costs.
5. Depreciation: Reduction in value of assets over time.
6. Interest Income/Expenses: Earnings or costs from interest-bearing assets and liabilities.
7. Taxes: Government levies on profit.
8. Net Profit/Income: Total earnings after all expenses and taxes.

How should a profit and loss statement be prepared?

1. Prepare Ledger Accounts: Use a journal book to compile ledger closing balances.
2. Create Trial Balance: Summarize all ledger accounts with their closing balances.
3. Compile Profit and Loss Statement: Post ledger accounts for purchases, sales, direct and indirect expenses, and income.

What does a profit and loss account look like?