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The Profit and Loss Statement is an essential tool for any type of business. As the designation suggests, the purpose is to determine if the business has made a profit or a loss in a given period. However how is the profit and loss statement prepared? What is normally seen as a simple statement sometimes on a single sheet would have taken a abundance of age to compile. This is since the items in the statement are summaries of income and expenses transactions over a financial year, a half year, a quarter or a month. It involves summarizing income and expense items and comparing the subtotals to determine whether the business has made a profit or a loss. The action of comparing income and expenses over a given period is known matching in accounting. It is absolutely vital for any person involved in a business to know how the profit and loss statement is prepared.
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