The summary that shows the financial performance of a business during a specific accounting period is called profit and loss statement. A profit and loss statement can be issued at the monthly, quarterly or annually according to the accounting period of the given business. It is a tool that helps in measuring the incurring profit and loss that results in a business during a specific period of time. The profit and losses are calculated by accumulating the income of the specific period and the subtracting the expenses of that period from the summarized income to get a clear picture of profit and losses. A simple formula that is used as the base of the profit and loss statement can be shown as under:-
Net Profit= Revenues – Expenses
Profit and loss statement helps you in answering simple questions related to your business such as how much money are you making from your operating business. It also helps in comparing the actual performance against the projected or forecasted performance. With the help of profit and loss statement you can also compare the performance of your business against the bench marks of that industry. With the help of profit and loss statement you can check the overall health and performance of your business and find out where the actual mistakes lie within your business that is reducing your profits. Profit and loss statement can also be used as a proof of profit of you are filing for mortgage or finance to a credit company.
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