Understanding Profit and Loss Accounts: A Clear Guide

A Profit and Loss (P&L) account, also known as an income statement, summarizes a company’s revenues, costs, and expenses over a set period. It reveals the bottom line: net profit or net loss. Key components: • Revenue (Sales): Total income before any deductions. • Cost of Goods Sold (COGS): Direct costs to produce goods or services. • Gross Profit: Revenue minus COGS. • Operating Expenses: Running costs such as rent, utilities, payroll, and marketing. • Net Income: Gross profit minus all expenses, interest, and taxes. Why it matters: P&L accounts track performance over time and guide management decisions on pricing and cost control. Investors and lenders use them to assess a company’s financial health and profitability.

Use The App To Win ₦1m

Stories are shared by community members. This article does not represent the official view of NaijaWorld — the author is solely responsible for its content.