Answers · Bookkeeping
What Is a Profit and Loss Statement?
A profit and loss statement summarizes revenue and expenses over a period and shows operating profit or loss.
How it works
The rule, and what it turns on.
It is a period statement, unlike a balance sheet. Review revenue, gross margin, payroll, operating expenses and unusual classifications.
Example
Revenue $800,000 less $300,000 COGS less $400,000 operating expenses produces $100,000 operating profit.
Common mistakes
What we see go wrong, and what we do instead.
- Assuming cash equals profit.
- Classifying loan principal as expense.
A better approach
- Compare current period with prior periods and budget.
Authority
Where this comes from, so you can check it.
IRC §6001; Treas. Reg. §1.6001-1; IRS Publication 583; IRS Small Business Recordkeeping guidance.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- Profit and Loss vs. Balance Sheet: What's the Difference?
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