How to Explain a Profit-Loss Statement
Profit and loss statements are income statements.
A profit and loss statement is the same as an income statement. The profit and loss statement starts with any cash inflows that you have. After you find your total cash inflows, such as from sales, you then reduce this amount by the costs you had during the year to make the sales. These expenses are costs you needed to perform business. The profit and loss statement ends with your total net profit for the year. This is all the money you made during the year minus any expenses you had during the year.
Step 1: Start with the first line of the profit and loss statement. This line is gross receipts. Explain that gross receipts are the amount of sales you made during the year or the amount of money your company brought in during the year.
Step 2: Explain the expenses. After your gross receipts, your profit and loss statement will have the expenses you incurred during the year. This is any cash you paid out that had to do with your business. For example, if you spend $14,000 during the year on advertising, then you would have a line on the profit and loss statement saying Advertising Expense with $14,000 next to it.
Step 3: Point out the bottom line of the profit and loss statement. The bottom line is your net profit. The net profit is calculated by taking your gross receipts and subtracting out expenses. This is the amount of money your company made during the year.
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