Financial Statements

Profit and Loss Statement – The Financial Statement that matters


Business or trade is all done with the idea of making surplus money. The surplus is known as profit in common parlance. Understanding the profit and loss statement is of utmost importance for a business person. It should not be left to an accountant.

First thing is Profit and Loss statements are not complex. They are based on a very simple formula of Sales – Cost. All other things are to break up Sales and Costs. Sales are at the top of the statement. Costs are below the Sales and the Profit is at the very bottom. There may be many variations but Profit or Loss always appears at the bottom.

So what makes reading the Profit and Loss statement difficult? It is the different words being used. Sales are called revenue or incomes, and Costs called expenses. Also the Sales are broken into various sub headings. Similarly cost is broken down into sub headings.

The easy way is to read the headlines first. Just get a hold of the Total Revenue or Total Sales. Also deduct the discounts to get Net Sales. Now just pay attention to the Expenses. Just read what expenses are there. It is as easy as keeping track of home expenses. Deduct the expenses from net revenue to get the Gross Profit. Now deduct taxes and other payables to get Net Profit. It is simple is it not? As you start reading it you will know more. For complexities the accountant is always there to help. But do not depend on him but learn from him. To know more you can read this article.


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