Profit and Loss Statements Key Terms

Find out what the accountants already know

Most businesses hire an accountant to keep track of their books or finances. However, good business owners will stay on top of their finances by checking the books and deciphering the language of profit and loss statement, since this represents the single most important piece of paper the company accountant produces. Know what the P & L or income statement means and how to interpret it. Stay knowledgeable about your finances by learning the key terms of the profit and loss statement.

 

P & L

P & L is another name of profit and loss statement. This abbreviation is often used in place of the full name of the statement.
Try: Investopedia provides a detailed explanation of P & L.

Balance sheet

A balance sheet is the record of what financial position your business is in on a certain given date. Balance sheets relate to profit and loss statements by providing day-to-day financial details of your business while a profit and loss statement gives this information for a longer period, usually yearly.
Try: Business Owner's Tool Kit provides in depth information about balance sheets. Ohio State University offers information on balance sheets, including how to set one up. The university also offers a glossary of definitions relating to profit and loss statements.

Fundamental analysis

When you perform a fundamental analysis, you take the financial information of a company, specifically the profit and loss statement, and analyze this data to determine if the company stock is priced correctly.
Try: Stock Charts offers a detailed explanation of fundamental analysis.

Discretionary expenses

Discretionary expenses are items a business buys but does not actually need, such as cable TV or gym memberships for employees. These may be one time or recurring expenses. They relate to a profit and loss statement as a part of balancing the budget since these are the areas where a business can tighten up its spending.
Try: Debt Goal offers information on discretionary expenses.

Depreciation

Depreciation refers to the deduction allowed for wear and tear on equipment. Each year as equipment ages, a business can take the amount determined by the Internal Revenue Service to compensate them for the ultimate replacement of the equipment. Profit and loss statements include depreciation as a part of the overall statement.
Try: CCH provides detailed information about depreciation, including a depreciation chart for clarity.

Selling, general and administrative expenses, or SG&A

Selling, general and administrative expenses, or SG&A, represent operating costs of the business. The profit and loss statement reflects these figures on the statement.
Try: Financial Education offers a detailed explanation of selling, general and administrative expenses.

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