A **Profit and Loss Statement (P&L)**—also called an **Income Statement**—shows a product, line of business or company’s financial performance over a period of time. It breaks down **revenues, costs, and expenses** to calculate **net earnings (profit).** ## Example ## Understanding a Profit and Loss Statement (P&L) | **Category** | **Amount (USD)** | **Explanation** | |------------------------------------------|------------------|---------------------------------------------------------------------------------| | **Revenue** | 120,000 | Total money earned from sales before any deductions. | | Returns, Refunds, Discounts | -5,000 | Adjustments for returns, refunds, or discounts provided to customers. | | **Total Net Revenue** | 115,000 | Revenue after adjustments for returns and discounts. | | **Cost of Goods Sold (COGS)** | 45,000 | Direct costs of producing or purchasing goods sold (e.g., materials, labor). | | **Gross Profit** | 70,000 | Net Revenue minus COGS; shows profit after production costs. | | **Operating Expenses (Excluding Depreciation & Amortization):** | | Costs related to running the business. | | - Advertising & Promotion | 10,000 | Money spent on marketing and promoting the business. | | - Operational Costs | 15,000 | General costs like rent, salaries, and utilities. | | **Total Operating Expenses (Excl. Depreciation & Amortization)** | 25,000 | Total of all operating expenses, excluding depreciation & amortization. | | **[[Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)]]** | 45,000 | Gross Profit minus Operating Expenses (Excl. Depreciation & Amortization). | | - Depreciation & Amortization | 5,000 | Gradual expense for the use of long-term assets over time. | | **Earnings Before Interest & Taxes (EBIT)** | 40,000 | EBITDA minus Depreciation & Amortization; also called Operating Profit. | | **Other Expenses:** | | Additional expenses not part of regular operations. | | - Interest Expense | -5,000 | Cost of borrowing money (e.g., loan interest). | | **Earnings Before Taxes (EBT)** | 35,000 | EBIT minus Interest Expense; profit before taxes are applied. | | **Income Taxes** | 7,000 | Taxes owed based on the business’s earnings. | | **Net Earnings** | 28,000 | Final profit after all expenses, including taxes. | | **Net Earnings as % of Revenue** | 23.3% | Shows how much of total revenue becomes profit (Net Earnings ÷ Revenue × 100). |