Profit and Loss Statement (P&L): Format and Example [Excel Template]

Profit and Loss Statement (P&L)

Guide to Understanding the Profit and Loss Statement (P&L) Statement

What is a Profit and Loss Statement?

The Profit and Loss Statement (P&L) is a financial statement that starts with revenue and deducts costs and expenses to arrive at net income, the profitability of a company, in a specified period.

Profit and Loss Statement (P&L)

Table of Contents

Profit and Loss Statement Format
P&L Structure — Accrual Accounting
P&L Structure — Cash-Basis Accounting
P&L Statement for Private Companies
Profit and Loss Statement Calculator — Excel Template
Simple Profit and Loss Statement Example

Profit and Loss Statement Format

The term profit and loss statement, or “P&L”, is interchangeable with the income statement, one of the three core financial statements that all publicly traded companies are obligated to file with the SEC.

For public companies listed in the U.S., the 10-Q profit and loss statement (P&L) must be filed each quarter, with a 10-K annual filing due for the 4^th quarter.

10-Q → 3x Per Year (and 4th is 10-K)
10-K → 1x Per Year

Together, alongside the cash flow statement and balance sheet, the P&L statement provides a detailed depiction of the financial state of a company.

In particular, the P&L statement shows the operating performance of the company as well as the costs and expenses that impact its profit margins.

Upon assessing a company’s P&L statement, one can gauge the company’s ability to:

Generate Revenue (the “Top Line”)
Manage Costs and Expenses, e.g. COGS, Operating Costs, SG&A
Create Profits, e.g. Gross Margin, Operating Margin, EBITDA Margin, Net Profit Margin

The standard profit and loss (P&L) statement will consist of the following line items:

Profit and Loss Statement	Line Items
Revenue	Sales Generated from Selling Products/Services from Customers
Less: Cost of Goods Sold (COGS)	Costs Directly Associated with Core Revenue Production
Gross Profit	Gross Profit = Revenue – COGS
Less: Operating Expenses (SG&A)	Indirect Costs NOT Directly Related to Revenue Creation
Operating Income (EBIT)	EBIT = Gross Profit – Operating Expenses
Less: Interest Expense	Periodic Payments on Debt Obligation (i.e. the Cost of Debt Financing)
Pre-Tax Income (EBT)	EBT = EBIT – Interest Expense
Less: Taxes	Legally Mandatory Payments to the City, State, and Federal Government
Net Income (“Bottom Line”)	Net Income = EBT – Taxes

Profit and Loss Statement (P&L) in Accounting Method

The profit and loss statements (P&L) can be prepared by an accountant under two methods:

P&L Structure — Accrual Accounting

Under the revenue recognition principle, revenue is recognized when “earned” under GAAP standards (i.e. product or service delivered to the customer regardless of whether cash payment was received)
Expenses are matched in the same period as the corresponding revenue they helped create, which is called the matching principle.
P&L statements filed under accrual accounting are required under U.S. GAAP standards.

P&L Structure — Cash-Basis Accounting

Under cash accounting, revenue is not recognized until the customer pays in cash to the company for the products/services received
Expenses under cash accounting, similar to revenue, are not recognized until the cash outflow occurs – meaning that the company has actually paid the third party in cash.
P&Ls prepared under cash-basis accounting are more common for private companies.

P&L Statement for Private Companies

Note that for many private companies, revenue is recorded as “income” and the expenses are often combined together in a single section, rather than distinguishing between:

The lack of standardization for private companies makes adjusting the financials often a necessary step to properly evaluate the actual financial performance of the company.

For instance, in the context of an acquisition where the acquirer follows accrual accounting, adjustments to a target company’s financial statements would be necessary if it follows cash accounting.