Profit and Loss Statement

The profit and loss statement covers a span of time and is built on accrual accounting, so it records revenue when earned and costs when incurred rather than when cash moves. That is why a company can report record profits while its bank balance falls, and why the cash flow statement is the necessary companion. It is also the statement most exposed to judgement: depreciation policy, provisioning, revenue recognition timing and the classification of exceptional items all shift the bottom line without any change in the business. Read the top line, the operating line and the bottom line together, because a rising net profit driven by other income is a different animal from one driven by sales.