Profit and loss account: how to read and analyze

So, friends, today we will see how the Profit and Loss statement is read. In this post, we will first learn why Profit Loss accounts are created, what is written in it, and we will also teach some important things which will teach you Adjusting reading profit and loss statement will prove useful

official definition

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The profit and loss account shows the net profit and net loss of the business for the accounting period. This account is prepared in order to determine the net profit or net loss that occurs during an accounting period for a business concern.

So let us first show you what the profit and loss statement looks like.



Look at the above image carefully, in it, you will see many things which can be seen in ordinary business. Many types of expenses and income that come and go in our regular life. Now we come to the subject of our importance.

Why make a profit and loss statement?


Profit and Loss Account This is a nominal account. Where there is only income and expenditure, you know that business expenses and income are increasing or decreasing. This statement also informs How the business spends money, but the purpose of this statement is that you know whether the business is moving towards profit or not. And an important thing is that this statement comes only on all indirect expenses. Indirect expenses mean expenses that come after being manufactured. I want to put in front of you some points of importance in salaries, insurance premiums, advertisement, etc. which is about profit and loss statement.


  • This statement tells us that business sales are increasing or not, so we understand in which direction the business is going.

  • This statement tells us in which field the business is investing money, from this we will know in which direction the business wants to turn itself.

  • This statement is how much interest is given to us on loan.

  • From this statement, we get to know how much of the wealth of the business is ruined or worked

Now we see that in the Profit and Loss statement, what things are written with importance. So let's start.

Net sales:


sales - sales return - excise duty = Net sales


This net sale tells us how much sales the business has made. Out of the gross sales, excise duty (a kind of tax) and sales return (which came back due to some cars after being sold) comes after nickel, it looks like the business box which is very important.


gross profit

gross profit is the difference between net sales and the cost of goods sold.it is the first and the broadest measure of profit


While reading Profit and Loss Statement :

  1. While making a profit and loss statement, keep in mind that every account is dependent on each other.

  2. While reading the account p & l, keep in mind that there are some technical facts behind every result.

  3. While reading this account, pay attention to the news that comes continuously and at the time of the result.

  4. It is important to show the results of the expenses incurred by the business.

Now we take goodbye from you. We are sure that you will like this information