What is a profit and loss statement? Examples and template

A profit and loss (P&L) statement, also known as an income statement, is a fundamental financial document that provides a detailed overview of a company's financial performance over a specific period, highlighting revenues, costs, and expenses to assess profitability. It serves as a critical tool for investors, managers, and business owners in making informed decisions about product development and management by identifying areas for improvement. The P&L statement can be prepared using either the cash accounting or accrual method, and it can follow a single-step or multistep approach, each offering different levels of detail. While a single-step statement simply subtracts total expenses from total revenue to calculate net income, a multistep statement provides a more nuanced breakdown of direct and indirect costs, offering insights into gross profit and net operating income. The P&L statement is distinct from a balance sheet, as it focuses on income and expenses, whereas a balance sheet provides a comprehensive picture of a company's financial position, including assets and liabilities. Analyzing P&L statements helps in evaluating company performance over time, identifying profitable products or services, and understanding expense trends, thereby proving the financial strength of a company to potential investors.