Profit and Loss Statement

Definition

Profit and Loss Statement is one of the key financial reports which summarizes the business revenues, expenses, and net income over a specified period of time.

What It Means

Also known as the Income Statement, this financial report shows how profitable business operations are. The key elements in the Profit and Loss Statement are:

  • Revenues
  • Direct costs of revenues
  • Expenses
  • Net income

The fundamental goal for every business is to generate a level of revenues while controlling the direct costs and expenses associated with its operations for a positive net income. In this case, the owners are rewarded with dividend distributions and/or increase in their equity through retained earnings. When valuing a small business for sale, Profit and Loss Statements may require adjustment through recasting.