The Profit & Loss (P&L) account is a financial statement that shows a company’s revenues and expenses during a particular period. It indicates the company’s ability to generate profits or incur losses from its operations.
The P&L account starts with the company’s revenue, which is the money earned from sales, services, or other business activities. The expenses are then deducted from the revenue to arrive at the net profit or loss. The expenses include the cost of goods sold, operating expenses such as salaries, rent, utilities, and marketing expenses.
The P&L account provides valuable information to the company’s management, investors, and creditors about its financial performance. It helps the management to identify areas where they can reduce costs and increase revenues to improve profitability. Investors use the P&L account to evaluate the company’s profitability and growth potential, while creditors use it to assess the company’s ability to repay its debts.
