Accounting For Dummies®, 4th Edition

9.2. Presenting a P&L Template

NOTE

Profit performance reports prepared for a business's managers typically are called P&L (profit and loss) reports. These reports are prepared as frequently as managers need them, usually monthly or quarterly — perhaps even weekly in some businesses. An internal P&L report goes to the manager in charge of each profit center; these confidential profit reports do not circulate outside the business.

External financial statements comply with well-established rules and conventions. In contrast, the format and content of internal accounting reports to managers is a wide-open field. If you could sneak a peek at the internal P&L reports of several businesses, I think you would be surprised at the diversity among the businesses. All businesses include sales revenue and expenses in their internal P&L reports. Beyond this broad comment, it's very difficult to generalize about the specific format and level of detail included in P&L reports, particularly regarding how operating expenses are disclosed.

Businesses that sell products deduct the cost of goods sold expense from sales revenue, and then report gross margin (also called gross profit) — both in their externally reported income statements and in their internal P&L reports to managers. However, internal P&L reports have a lot more detail about sources of sales and the components of cost of goods sold expense. In this chapter, I use the example of a business that sells products, so the P&L report that ...