Income Statement Vs. Profit And Loss: Are They The Same?
As the founder of a startup, having a solid grasp on your business’s financial health is vital to making intelligent decisions about its present and future. Reviewing and comprehending the three basic financial statements is the key to that understanding.
The three basic financial statements are the income statement (or profit and loss statement), the balance sheet, and the cash flow statement, each of which provides a different perspective on your business’s financial health and—when reviewed together—paint a useful big-picture view of the financial health of your business.
A common source of confusion for first-time founders centers on the income statement vs. profit and loss statement, so let’s begin by taking a look at those terms.
Income Statement Vs. Profit And Loss Statement
One of the most fundamental questions first-time startup founders have about the three basic financial statements is, “Is profit and loss the same as income statement?”
Fortunately, the answer to this one is exceptionally simple: Yes, they’re the same thing. With that in mind, we’ll be using the terms profit and loss (P&L) and income statement interchangeably from here on out. This statement is sometimes alternatively referred to as the statement of revenue and expense, or the statement of operations, but since those terms are significantly less common, we won’t use them again here.
Now that we have that clarification out of the way, let’s go into a bit more detail about what the income statement—or profit and loss statement—is and how it works.
By monitoring the data in your income statements over time, you can gain an understanding of the trajectory of your business’s financial performance, set and keep track of goals, and identify problem areas.
What is the income statement?
An income statement summarizes the business’s operations during a given financial period (usually a month, quarter, or year). It’s the most commonly used financial statement across businesses of all sizes and is generally considered the most important of the three basic financial statements, as it shows the company’s ability (or inability) to generate profit over a period of time.
Additionally, you can use the data contained in the P&L statement to measure the business’s profitability according to commonly used profitability ratios like profit margin and gross margin ratios.
The basic equation on which the income statement is built is:
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Zeni Inc. provides back-office financial services which include Bookkeeping Services, CFO Services and Controller Services. Zeni Inc. is not a public accounting firm and does not provide public accounting services.