P and L

The P&L is also known as a statement of earnings, statement of operations, or statement of income.

The basic equation on which a P&L is based is:

Revenues – Expenses = Net Income

All companies need to generate revenue to stay in business. Revenues are used to pay expenses, interest payments on debt and taxes owed to the government. After the costs of doing business are paid, the amount left over is called net income. Net income is theoretically available to shareholders, though instead of paying out dividends, the firm's management often chooses to retain earnings for future investment in the business.

P&Ls are all organized the same way, regardless of industry. The basic outline is shown in the following example: