A profit and loss statement, otherwise known as an income statement, is a summary of a company’s profit or loss during any one given period of time, such as a month, three months, or one year. The profit and loss statement records all revenues for a business during this given period, as well as the operating expenses for the business.
You use a profit and loss statement to track revenues and expenses so that you can determine the operating performance of your business over a period of time. Small business owners use these statements to find out what areas of their business are over budget or under budget. Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Profit and loss statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales. They also can be used to determine income tax liability.