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Home > QFINANCE Dictionary > Definition of profit and loss account

Definition of

profit and loss account

Accounting

record of firm's external financial transactions the summary record of a company's sales revenues and expenses over a period, providing a calculation of profits or losses during that time.

Companies typically issue P&L reports monthly. It is customary for the reports to include year-to-date figures, as well as corresponding year-earlier figures to allow for comparisons and analysis.

There are two P&L formats, multiple-step and single-step. Both follow a standard set of rules known as Generally Accepted Accounting Principles. These rules generally adhere to requirements established by governments to track receipts, expenses, and profits for tax purposes. They also allow the financial reports of two different companies to be compared.

The multiple-step format is much more common, because it includes a larger number of details and is thus more useful. It deducts costs from revenues in a series of steps, allowing for closer analysis. Revenues appear first, then expenses, each in as much detail as management desires. Sales may be broken down by product line or location, while expenses such as salaries may be broken down into base salaries and commissions.

Expenses are then subtracted from revenues to show profit (or loss). A basic multiple-step P&L looks like this:

MULTIPLE-STEP PROFIT & LOSS ACCOUNT ($)
NET SALES 750,000
Less: cost of goods sold 450,000
Gross profit 300,000
LESS: OPERATING EXPENSES
Selling expenses
Salaries & commissions 54,000
Advertising 37,500
Delivery/transportation 12,000
Depreciation/store equipment 7,500
Other selling expenses 5,000
Total selling expenses 116,000
General & administrative expenses
Administrative/office salaries 74,000
Utilities 2,500
Depreciation/structure 2,400
Misc. other expenses 3,100
Total general & admin expenses 82,000
Total operating expenses 198,000
OPERATING INCOME 102,000
LESS (ADD): NON-OPERATING ITEMS
Interest expenses 11,000
Interest income earned (2,800) 8,200
Income before taxes 93,800
Income taxes 32,360
Net Income 61,440

P&Ls of public companies may also report income on the basis of earnings per share. For example, if the company issuing this statement had 12,000 shares outstanding, earnings per share would be $5.12, that is, $61,440 divided by 12,000.

Related definitions of "profit and loss account"

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Definitions of ’profit and loss account’ and meaning of ’profit and loss account’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’profit and loss account’ and other financial terms with our online QFINANCE Financial Dictionary.

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