What is a Profit & Loss Statement?

Knowing whether or not your business is profitable is important. You need to determine whether your revenue is higher than your expenses, and whether you are actually making a profit. Profit and loss statements help you to figure out if you’re in the black or in the red.

A profit loss statement includes three main sections: expenses, revenue and net income. Revenue refers to money coming in. This is what people (clients or customers) are paying you. Expenses are costs associated with operating your business. That’s what you’re paying other people and businesses. Net income is the difference between these two numbers. If you subtract your expenses from your income, that is your profit. Whether you have a positive or negative balance lets you know if your business is profitable.