A profit and loss statement includes values of revenues, costs and expenses incurred during a specific fiscal period, commonly a quarter or a year. The statement contains crucial information about an entity's future abilities to generate profit by increasing revenues, reducing costs and expenses or both.
Public companies have to issue by law three major statements every quarter and year, one of them is the profit and loss statement, the other two are the balance sheet and the cash flow statement. The profit and loss statement, also known as the income statement, is similar to the cash flow statement in that it documents changes in the account balances over the periods of time that the statements cover.
The profit and loss statement follows a specific format. It begins with a section for revenue that can also be broken down into the different types of revenues that the company makes. For example, a company may make money from selling products such as machinery or energy, but it may also make additional revenue from its financial products, and these revenues are added up for a total for this section. The next section details the cost of doing business, which includes such areas as costs of goods sold, administrative and payroll expenses and research or developing costs. The costs are subtracted from the revenue to calculate the operating profit.