Profit and Loss Statement
A profit and loss statement is a certified monthly, quarterly or annual financial document published by a public company, presenting earning, expenses, and net profits. The distinction between the profit and loss statement and the balance/ spread sheet deals with the periods of the time that it speaks to. The profit and loss statement demonstrates transactions over a certain period of time, usually monthly, quarterly or annually; while a balance/ spread sheet provides a picture of holdings on a specific date. One must remember that in nearly all situations, profit is not the same thing as cash flow.
“The basic formula for a profit and loss statement is as follows:
Revenues – Expenses = Net profit. Generally, a profit and loss statement follows this format:
Revenues – Operating (variable) expenses = Gross profit (operating) margin – Overhead (fixed expenses) = Operating income +/ - Other income or expense (non-operating) = Pre-tax income – Income taxes = Net income (after taxes) (Wells Fargo, 2012).”
“Revenue is the money you receive in payment for your products or services. Operating, or variable, expenses are the expenses that rise or fall based on your sales volume. Gross profit margin or operating margin is the amount left when you subtract operating expenses from revenues. Overhead, or fixed, expenses are costs that don’t vary much month-to-month and don’t rise or fall with the number of sales you make. Examples might include salaries of office staff, rent, or insurance. Operating income is income after deducting operating and overhead expense. Other income or expenses (non-operating) generally don’t relate to the operating side of the business, rather to how the management finances the business. Other income might include interest or dividends from company investments, for example. Other expenses might include interest paid on loans. Pre-tax income is income before federal and state...