Article: Some Definitions

Definitions for terms on a Profit and Loss Statement 

A profit and loss statement, also known as a P&L, or income statement, gives a measurement of the activity of a business over some period of time, including a month, quarter, or a year. 

The P&L is important, because it tells the profitability of a business. The profit and loss statement's main items are revenue, expenses, and profit (or loss). 

The basic format (template) is: 

REVENUE - cost of goods sold = GROSS PROFIT - operating expenses = OPERATING INCOME +/- other income or expenses = EARNINGS BEFORE TAXES - income taxes = NET EARNINGS 

DEFINITIONS: 

REVENUE is compensation received for your product or services. 

COST OF GOODS SOLD are the variable expenses related to the sale of your product. 

OPERATING EXPENSES are fixed expenses, such as rent, and utilities. 

OPERATING INCOME is profit after operating expenses are deducted. 

EARNINGS BEFORE TAXES is income including other income and expenses, but before taxes. 

INCOME TAXES are federal, state, and local taxes. 

NET EARNINGS is the profit earned by the business, and it includes all expenses, including taxes.