Income Statement vs. P&L (2024)

Knowing your business’s financial health is key to budgeting, decision making, and implementing change. You can learn about your finances by using financial statements.

To find out your company’s net profits during a specific time, use the income statement or P&L. What is the difference between income statement vs. P&L?

P&L vs. income statement

P&L is short for profit and loss statement. A business profit and loss statement shows you how much money your business earned and lost within a period of time.

There is no difference between income statement and profit and loss. An income statement is often referred to as a P&L. The income statement is also known as statement of income or statement of operations.

Now that we’ve answered the question surrounding income statement vs. profit and loss, we can address the importance of this statement, as well as how it differs from the other financial statements.

Since profit and loss vs. income statement are actually the same, the terms will be used interchangeably throughout this article.

About the income (P&L) statement

Use the P&L statement to summarize monthly, quarterly, or annual operations. The information can show you where your money is going. Investors and lenders want to see your income statement to assess your business’s risk. And, your accountant can provide financial expertise based on your statement.

You can also use the statement to measure profitability by calculating business financial ratios, like the profit margin and gross margin ratios, from the financial data.

The necessary parts of an income statement include revenues, expenses, and the net profit/loss.

Revenues, or income, are amounts earned from primary business activities, like product sales, or other financial gains. Expenses include amounts you paid, like the cost of goods sold. The bottom line of the income statement is the net profit or loss, depending on if your revenues are more or less than your expenses.

The title of the income statement will vary depending on the period you want it to cover. Here are some examples of titles you could use:

  • For the Six Months Ended June 30, 2017 (January 1 – June 30)
  • The Fiscal Year Ended December 31, 2017 (January 1, 2017 – December 31, 2017)

Income Statement vs. P&L (1)

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P&L statement vs. other financial statements

The income statement might be the same as the P&L, but it is different from the other financial statements. There are three main financial statements, including the income statement, balance sheet, and cash flow statement.

The income statement summarizes income and expenses. The balance sheet shows assets, liabilities, and owner’s equity. The cash flow statement summarizes your incoming and outgoing money from operations, investing, and financing.

Income statement vs. balance sheet: The income statement answers whether the business is profitable whereas the balance sheet shows what a company is owed and what it owns.

The income statement shows information during a set period of time. On the other hand, the balance sheet shows the company’s financial position during a specific point in time.

P&L statement vs. cash flow statement: Unlike the income statement, the cash flow statement summarizes where cash comes from as well as where cash goes. The cash flow statement is affected by late paying customers—if someone does not pay, you will have less cash on hand during that time period.

You can create a cash flow statement in one of two ways: indirect or direct. If you use the indirect method, you need to use your income statement’s net profit or loss. The last line of the income statement is the first line of the cash flow statement.

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This article is updated from its original publication date of December 8, 2017.

This is not intended as legal advice; for more information, please click here.

Income Statement vs. P&L (2024)


Income Statement vs. P&L? ›

P&L is short for profit and loss

Economic loss is a term of art which refers to financial loss and damage suffered by a person which is seen only on a balance sheet and not as physical injury to person or property. › wiki › Pure_economic_loss
statement. A business profit and loss statement shows you how much money your business earned and lost within a period of time. There is no difference between income statement and profit and loss. An income statement is often referred to as a P&L.

Is a balance sheet more important than an income statement? ›

However, many small business owners say the income statement is the most important as it shows the company's ability to be profitable – or how the business is performing overall. You use your balance sheet to find out your company's net worth, which can help you make key strategic decisions.

Should the income statement and balance sheet match? ›

The net income on the income statement doesn't equal the income on the balance sheet for divisional or departmental companies in EasyACCT. For a company that's set up with departments or divisions, the net income on your income statement and balance sheet should be equal.

Does an income statement tell how much a firm is making or losing? ›

An income statement is a report of your business's profits and losses over a specific period. It is also called a profit and loss statement (P&L). You can use the income statement to summarize monthly, quarterly, or annual operations. The purpose of income statements is to show the profitability of your business.

How do you compare a profit and loss statement? ›

To compare against previous periods effectively, you need to use a consistent time frame. For example, you may choose to compare your current P&L statement to the same period last year or the previous quarter. This helps you identify trends and make meaningful comparisons.

What two financial statements are the most important? ›

Another way of looking at the question is which two statements provide the most information? In that case, the best selection is the income statement and balance sheet, since the statement of cash flows can be constructed from these two documents.

What is the most useful financial statement? ›

Types of Financial Statements: Income Statement. Typically considered the most important of the financial statements, an income statement shows how much money a company made and spent over a specific period of time.

Why does my profit and loss not match my bank statement? ›

Unpaid debts

For example, if your business provides credit to customers or has unpaid bills, the money you've earned may not yet be in your account. Therefore, your bank balance may appear higher than your revenue, giving you a false sense of financial security.

Is the profit and loss statement the same as the income statement? ›

A business profit and loss statement shows you how much money your business earned and lost within a period of time. There is no difference between income statement and profit and loss. An income statement is often referred to as a P&L.

How do you know if your income statement is correct? ›

Compare the income statement amount with the underlying accounting records, and compare the underlying accounting records to the supporting documentation to discover if the error was made before the trial balance was prepared.

What 4 things does an income statement show? ›

The income statement shows a company's expense, income, gains, and losses, which can be put into a mathematical equation to arrive at the net profit or loss for that time period. This information helps you make timely decisions to make sure that your business is on a good financial footing.

What are the limitations of the income statement? ›

The limitations of income statement are as follows: Income is reported based on the accounting rules and does not represent the actual cash changing hands. There will be variation in the way inventory is calculated (either FIFO or LIFO) and therefore income statements cannot be compared.

Does an income statement show profit? ›

An income statement shows a company's revenues, expenses and profitability over a period of time. It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement.

What is a good P&L percentage? ›

An NYU report on U.S. margins revealed the average net profit margin is 7.71% across different industries. But that doesn't mean your ideal profit margin will align with this number. As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.

How to read a P&L for dummies? ›

How to Read a Profit and Loss Statement
  1. Net Sales (or Revenue) – Cost of Sales (or Cost of Goods Sold) = Gross Profit (or Gross Margin)
  2. Gross Profit – Operating Expenses = Net Operating Profit.
  3. Net Operating Profit + Other Income – Other Expenses = Net Profit Before Taxes.

Why is the balance sheet most important? ›

A balance sheet will provide you a quick snapshot of your business's finances - typically at a quarter- or year-end—and provide insights into how much cash or how much debt your company has.

Why is balance sheet one of the most important financial statement? ›

Importance of a Balance Sheet

This financial statement lists everything a company owns and all of its debt. A company will be able to quickly assess whether it has borrowed too much money, whether the assets it owns are not liquid enough, or whether it has enough cash on hand to meet current demands.

What are the most important financial documents? ›

The income statement, balance sheet, and statement of cash flows are required financial statements.

Is the income statement the most important? ›

Perhaps one of the most important of those documents, an income statement shows all of a company's revenues and expenses and is a key indicator of how they'll perform in the future.

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