What is a P&L?

What is a P&L?
A Profit and Loss Statement (P&L) is one of
the cornerstone pieces of a business’
financial reports.
As the name suggests, the P&L determines
the profit or loss that a business has made
in a given period (usually 1 year).
A P&L will typically illustrate two different
profit figures, namely Gross Profit and Net
Profit (EBIT and EBITDA are also included
for larger entities).
Gross Profit is the profit (or Loss) earned
after only accounting for the expense of
Cost of Goods Sold. In other words, this
figure aims to demonstrate how much
profit the business makes solely from the
mark up on its products. A healthy Gross
Profit figure is a fundamental part of a
viable business.
A P&L differs from a Cash Flow Statement in
that it accounts for all expenses incurred,
not just cash items. Depreciation is an
example of a non-cash expense that will
reduce an entity’s net profit but will not
affect its cash balance.
The P&L is important because it illustrates
whether or not the business has achieved its
main objective: making a profit. Every
business needs to stay profitable to survive
in the long run.
If the P&L concludes the business has been
making a loss, decision makers can use this
information to review the business and
make the necessary changes to return it to
profitability.
Net Profit (or Loss) is the figure that is used
to determine whether or not the business is
profitable by deducting all expenses
incurred during the year from the total
revenue earned. A positive Net Profit figure
deems the business profitable.
For in-house and public courses visit
www.colouraccounting.holstgroup.co.uk
Call 0845 456 4000
to speak to a consultant now.
Search for ‘Colour Accounting’:
What is a Balance Sheet,
Cash Flow Statement
and P&L?
What is a Balance Sheet?
A balance sheet is a financial statement that
provides a snapshot of the assets, liabilities
and shareholders’ equity in a company.
The reason this form of financial statement
is referred to as a balance sheet is because
each side of the statement balances out the
other. In other words, the assets of the
company on one side are funded by the
liabilities and shareholder’s equity on the
other.
An easy way to visualise the balance sheet
equation is as follows:
Assets = Liabilities + Equity
Assets are the valuable things that the
business owns or controls. Their primary
purpose is to generate income and profit,
either directly or indirectly.
Assets may include any of the following:








Accounts receivable
Cash
Inventory
Prepaid Expenses
Property
Equipment
Investment real estate
Intangible assets
“The more financially
informed you are, the better
your business and money
management decisions will be.”
What is a Cash Flow Report?
A brief list of liabilities will include:






Accounts payable
Corporate bonds
Tax liabilities
Deferred tax assets
Unearned revenue
Provisions as a result of legal
proceedings
Equity is comprised of:
 Capital and reserves issued to equity
holders of the parent company
 Non-controlling interest in equity
Essentially, a balance sheet provides a
financial snapshot of a company at a specific
time. In a corporation, investors and
managing executives use this information to
make important decisions for the direction
of the organisation.
Ever heard the saying “Cash is king”?
There are many reasons businesses fail.
Poor sales. Poor management. Poor
marketing. But there is one reason that can
be attributed to the overwhelming majority
of business failures – poor cash flow.
A cash flow report is a statement that
displays four key pieces of information:




Cash balance at the start of the year
Cash received during the year
Cash spent during the year
Cash balance at the end of the year
This information is necessary because it
allows users to see how the company has
been managing its cash position, and
whether it has sufficient funds in the bank to
meet its cash obligations as they become
due.
Profit and Loss statements can be
misleading – in most cases accounting rules
require that sales are recognised even if
payment hasn’t been received. Cash flow
reports only recognise cash that has
physically been received from customers
and is at the company’s disposal.
The key factor in staying solvent is receiving
more cash than you spend, and this is
exactly what a cash flow report determines.
Hence the reason many stakeholders
consider the cash flow report to be the most
important report in a company’s financial
statements.
Small business owners may use balance
sheets to evaluate the overall financial
health of the company. Balance sheets also
help to identify and interpret business
trends in both large and small businesses.
The ability to interpret balance sheets is just
one important element of your overall
financial literacy. Financial literacy is crucial
to managing several aspects of your
personal and professional life.
The more financially informed you are, the
better your business and money
management decisions will be.
Call 0845 456 4000 to speak to a consultant now
Call 0845 456 4000 to speak to a consultant now
What is a Balance Sheet?
A balance sheet is a financial statement that
provides a snapshot of the assets, liabilities
and shareholders’ equity in a company.
The reason this form of financial statement
is referred to as a balance sheet is because
each side of the statement balances out the
other. In other words, the assets of the
company on one side are funded by the
liabilities and shareholder’s equity on the
other.
An easy way to visualise the balance sheet
equation is as follows:
Assets = Liabilities + Equity
Assets are the valuable things that the
business owns or controls. Their primary
purpose is to generate income and profit,
either directly or indirectly.
Assets may include any of the following:








Accounts receivable
Cash
Inventory
Prepaid Expenses
Property
Equipment
Investment real estate
Intangible assets
“The more financially
informed you are, the better
your business and money
management decisions will be.”
What is a Cash Flow Report?
A brief list of liabilities will include:






Accounts payable
Corporate bonds
Tax liabilities
Deferred tax assets
Unearned revenue
Provisions as a result of legal
proceedings
Equity is comprised of:
 Capital and reserves issued to equity
holders of the parent company
 Non-controlling interest in equity
Essentially, a balance sheet provides a
financial snapshot of a company at a specific
time. In a corporation, investors and
managing executives use this information to
make important decisions for the direction
of the organisation.
Ever heard the saying “Cash is king”?
There are many reasons businesses fail.
Poor sales. Poor management. Poor
marketing. But there is one reason that can
be attributed to the overwhelming majority
of business failures – poor cash flow.
A cash flow report is a statement that
displays four key pieces of information:




Cash balance at the start of the year
Cash received during the year
Cash spent during the year
Cash balance at the end of the year
This information is necessary because it
allows users to see how the company has
been managing its cash position, and
whether it has sufficient funds in the bank to
meet its cash obligations as they become
due.
Profit and Loss statements can be
misleading – in most cases accounting rules
require that sales are recognised even if
payment hasn’t been received. Cash flow
reports only recognise cash that has
physically been received from customers
and is at the company’s disposal.
The key factor in staying solvent is receiving
more cash than you spend, and this is
exactly what a cash flow report determines.
Hence the reason many stakeholders
consider the cash flow report to be the most
important report in a company’s financial
statements.
Small business owners may use balance
sheets to evaluate the overall financial
health of the company. Balance sheets also
help to identify and interpret business
trends in both large and small businesses.
The ability to interpret balance sheets is just
one important element of your overall
financial literacy. Financial literacy is crucial
to managing several aspects of your
personal and professional life.
The more financially informed you are, the
better your business and money
management decisions will be.
Call 0845 456 4000 to speak to a consultant now
Call 0845 456 4000 to speak to a consultant now
What is a P&L?
A Profit and Loss Statement (P&L) is one of
the cornerstone pieces of a business’
financial reports.
As the name suggests, the P&L determines
the profit or loss that a business has made
in a given period (usually 1 year).
A P&L will typically illustrate two different
profit figures, namely Gross Profit and Net
Profit (EBIT and EBITDA are also included
for larger entities).
Gross Profit is the profit (or Loss) earned
after only accounting for the expense of
Cost of Goods Sold. In other words, this
figure aims to demonstrate how much
profit the business makes solely from the
mark up on its products. A healthy Gross
Profit figure is a fundamental part of a
viable business.
A P&L differs from a Cash Flow Statement in
that it accounts for all expenses incurred,
not just cash items. Depreciation is an
example of a non-cash expense that will
reduce an entity’s net profit but will not
affect its cash balance.
The P&L is important because it illustrates
whether or not the business has achieved its
main objective: making a profit. Every
business needs to stay profitable to survive
in the long run.
If the P&L concludes the business has been
making a loss, decision makers can use this
information to review the business and
make the necessary changes to return it to
profitability.
Net Profit (or Loss) is the figure that is used
to determine whether or not the business is
profitable by deducting all expenses
incurred during the year from the total
revenue earned. A positive Net Profit figure
deems the business profitable.
For in-house and public courses visit
www.colouraccounting.holstgroup.co.uk
Call 0845 456 4000
to speak to a consultant now.
Search for ‘Colour Accounting’:
What is a Balance Sheet,
Cash Flow Statement
and P&L?