Financial Terms
profit and loss statement (P&L statement)

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Definition of profit and loss statement (P&L statement)

Profit And Loss Statement (P&L Statement) Image 1

profit and loss statement (P&L statement)

This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss

Related Terms:

After-tax profit margin

The ratio of net income to net sales.

Base probability of loss

The probability of not achieving a portfolio expected return.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Book profit

The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.

Capital loss

The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

capital loss

The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.

cash flow from operating activities, or cash flow from profit

This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.

Profit And Loss Statement (P&L Statement) Image 2


A statement that shows where a company’s cash came from and where it went for a period of time, such as a year.

Cash Flow statement

A financial report that shows the movement in cash for a business during an accounting period.

common-size income statement

Income statement that presents items as a percentage of revenues.

continuous loss

any reduction in units that occurs uniformly
throughout a production process

Controllable profit

The profit made by a division after deducting only those expenses that can be controlled by the
divisional manager and ignoring those expenses that are outside the divisional manager’s control.

Convention statement

An annual statement filed by a life insurance company in each state where it does
business in compliance with that state's regulations. The statement and supporting documents show, among
other things, the assets, liabilities, and surplus of the reporting company.

Cost–volume–profit analysis (CVP)

A method for understanding the relationship between revenue, cost and sales volume.

cost-volume-profit (CVP)

analysis a procedure that examines
changes in costs and volume levels and the resulting
effects on net income (profits)

Credit Loss

A loan receivable that has proven uncollectible and is written off.

Profit And Loss Statement (P&L Statement) Image 3

discrete loss

a reduction in units that occurs at a specific
point in a production process

External Financial Statements

Corporate financial statements that have been reported on by an external independent accountant.

Extraordinary Gain or Loss

Gains and losses that are judged to be both unusual and nonrecurring.

extraordinary gains and losses

No pun intended, but these types of gains
and losses are extraordinarily important to understand. These are nonrecurring,
onetime, unusual, nonoperating gains or losses that are
recorded by a business during the period. The amount of each of these
gains or losses, net of the income tax effect, is reported separately in the
income statement. Net income is reported before and after these gains
and losses. These gains and losses should not be recorded very often, but
in fact many businesses record them every other year or so, causing
much consternation to investors. In addition to evaluating the regular
stream of sales and expenses that produce operating profit, investors
also have to factor into their profit performance analysis the perturbations
of these irregular gains and losses reported by a business.

financial reports and statements

Financial means having to do with
money and economic wealth. statement means a formal presentation.
Financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
Financial reports also include footnotes to the financial statements and
much other information. Financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply

Financial reports or statements

The profit and loss account, Balance Sheet and Cash Flow statement of a business.

gross margin, or gross profit

This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.


The profit a company makes before expenses and taxes are taken away.

Gross profit

The difference between the price at which goods or services are sold and the cost of sales.
Income The revenue generated from the sale of goods or services.

Gross profit

The result of subtracting cost of goods sold from sales. Synonymous with gross margin.

Gross Profit

Revenue less cost of goods sold.

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Gross profit margin

Gross profit divided by sales, which is equal to each sales dollar left over after paying
for the cost of goods sold.

Gross Profit Margin

Gross profit divided by revenue.

Impairment Loss

A special, nonrecurring charge taken to write down an asset with an overstated
book value. Generally an asset is considered to be value-impaired when its book value
exceeds the future net cash flows expected to be received from its use. An impairment write-down
reduces an overstated book value to fair value.


An accounting statement that summarizes information about a company in the following format:
Net Sales
– Cost of goods sold
Gross profit
– Operating expenses
Earnings before income tax
– Income tax
= Net income or (Net loss)
Formally called a “consolidated earnings statement,” it covers a period of time such as a quarter or a year.

Income Statement

One of the basic financial statements; it lists the revenue and expense accounts of the company.
The Income statement is prepared for a given period of time.

income statement

Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.

Income statement

A financial report that summarizes a company’s revenue, cost of
goods sold, gross margin, other costs, income, and tax obligations.

income statement

Financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

Income statement (statement of operations)

A statement showing the revenues, expenses, and income (the
difference between revenues and expenses) of a corporation over some period of time.

Income Statements

A financial statement that displays a breakdown of total sales and total expenses.

Job Loss Insurance (Credit Insurance)

Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.


an expired cost that was unintentionally incurred; a cost
that does not relate to the generation of revenues


An excess of expenses over revenues, either for a single business transaction or in
reference to the sum of all transactions for an accounting period.

Loss carryback

The offsetting of a current year loss against the reported taxable
income of previous years.

Loss carryforward

The offsetting of a current year loss against the reported taxable
income for future years.

mission statement

a written expression of organizational purpose that describes how the organization uniquely meets its targeted customers’ needs with its products or services

Net operating losses

losses that a firm can take advantage of to reduce taxes.

Net profit

See operating profit.

Net profit margin

Net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.

normal loss

an expected decline in units during the production process

Notes to the financial statements

A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.

Official statement

A statement published by an issuer of a new municipal security describing itself and the issue

Operating profit

The profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation.

operating profit

See earnings before interest and income tax (EBIT).

Operating profit margin

The ratio of operating margin to net sales.

Paper gain (loss)

Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.

phantom profit

a temporary absorption costing profit caused
by producing more inventory than is sold

Pro forma financial statements

Financial statements as adjusted to reflect a projected or planned transaction.

Pro forma statement

A financial statement showing the forecast or projected operating results and balance
sheet, as in pro forma income statements, balance sheets, and statements of cash flows.


What’s left over after you subtract the cost of goods sold and all your expenses from sales.


The difference between income and expenses.


The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.

Profit and Loss account

A financial statement measuring the profit or loss of a business – income less expenses – for an accounting period.

Profit before interest and taxes (PBIT)


profit center

a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses

Profit center

An entity within a corporation against which both revenues and costs are
recorded. This results in a separate financial statement for each such entity, which
reveals a net profit or loss, as well as a return on any assets used by the entity.

Profit centre

A division or unit of an organization that is responsible for achieving profit targets.

Profit margin

Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a

profit margin

the ratio of income to sales

Profit Margin Ratio

A measure of how much profit is earned on each dollar of sales. It
is calculated by dividing the net income available for distribution to
shareholders by the total sales generated during the period.

profit module

This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).

profit ratios

Ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.

profit sharing

an incentive payment to employees that is
contingent on organizational or individual performance

Profit Sharing Plan

A retirement plan generally funded by a percentage of company
profits, but into which contributions can be made in the absence of profits.

profit-volume graph

a visual representation of the amount
of profit or loss associated with each level of sales

Profitability index

The present value of the future cash flows divided by the initial investment. Also called
the benefit-cost ratio.

Profitability index

See cash value added.

Profitability Index

A method for determining the profitability of an investment. It is
calculated by dividing the present value of the future net cash flows
by the initial cash investment.

profitability index

Ratio of net present value to initial investment.

profitability index (Pl)

a ratio that compares the present value of net cash flows to the present value of the net investment

Profitability ratios

Ratios that focus on the profitability of the firm. profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the

pseudo microprofit center

a center for which a surrogate
of market value must be used to measure output revenue

real microprofit center

a center whose output has a market value

Realized Gains and Losses

Increases or decreases in the fair value of an asset or a liability that
are realized through sale or settlement.

Registration statement

A legal document that is filed with the SEC to register securities for public offering.


This is the restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.

Residual losses

Lost wealth of the shareholders due to divergent behavior of the managers.

Restatement of Prior-Year Financial Statements

A recasting of prior-year financial statements to remove the effects of an error or other adjustment and report them on a new basis.

Retained profits

The amount of profit after deducting interest, taxation and dividends that is retained by the business.

Risk-adjusted profitability

A probability used to determine a "sure" expected value (sometimes called a
certainty equivalent) that would be equivalent to the actual risky expected value.

Statement billing

Billing method in which the sales for a period such as a month (for which a customer also
receives invoices) are collected into a single statement and the customer must pay all of the invoices
represented on the statement.

Statement of cash flows

A financial statement showing a firm's cash receipts and cash payments during a
specified period.

Statement of Cash Flows

One of the basic financial statements; it lists the cash inflows and cash outflows of the company, grouped into the categories of operating activities, financing activities, and investing activities. The statement of Cash Flows is prepared for a specified period of time.

statement of cash flows

One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the business’s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income

Statement of cash flows

Part of the financial statements; it summarizes an entity’s cash
inflows and outflows in relation to financing, operating, and investing activities.

statement of cash flows

Financial statement that shows the firm’s cash receipts and cash payments over a period of time.

Statement-of-cash-flows method

A method of cash budgeting that is organized along the lines of the statement of cash flows.

Statement of Financial Accounting Standards No. 52

This is the currency translation standard currently
used by U.S. firms. It mandates the use of the current rate method. See: statement of Financial Accounting
Standards No. 8.

Statement of Financial Accounting Standards No. 8

This is a currency translation standard previously in
use by U.S. accounting firms. See: statement of Accounting Standards No. 52.

statement of financial condition

See balance sheet.

Statement of retained earnings

An adjunct to the balance sheet, providing more detailed information about the beginning balance, changes, and ending balance in
the retained earnings account during the reporting period.

Statement on Management Accounting (SMA)

a pronouncement developed and issued by the Management
Accounting Practices Committee of the Institute of Management
Accountants; application of these statements is
through voluntary, not legal, compliance







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