Profit and loss account is a statement of a company which shows the revenues and expenses incurred by the company during a specific period, generally one year. It shows the financial position of the company. Profit and loss statement or income statement is very important for any organization because it shows the total profit earned by the company throughout the year. For a listed company, the shareholders know about their profits which they will by the distribution of the profit after tax. This statement is based on accrual accounting therefore, it matches revenues against expenses. Moreover, companies can analyze their expenses and different sources of revenue from this statement. Therefore, in order to determine the financial strength and profits of a company, profit and loss statement is considered very important.
1. To show lenders or banks, who you want a loan from, how your finances are doing.
2. So you can see what's happening in your business, money-wise.
It shows you what has been made r loss for the current operating period.