Question

What are the main sections of the Profit Loss?

1) Income, Expenses, and Liabilities
2) Income, Cost of Goods Sold, and Expenses
3) Income, Assets, and Owner's Equity
4) Assets, Liabilities, and Equity

Answer 1

The main sections of a Profit and Loss statement are Income, Cost of Goods Sold, and Expenses. These sections help calculate profits by comparing total revenue with total costs, and understanding them is important for assessing financial health.

Step-by-step explanation:

The main sections of the Profit and Loss statement (P&L) are 2) Income, Cost of Goods Sold (COGS), and Expenses.

Income, also known as revenue, represents the money an entity receives from its normal business activities, like sales or services provided. Cost of Goods Sold is the direct cost attributed to the production of the goods sold by the company. Expenses include all the money that flows out to support operations aside from COGS, like salaries, rent, utilities, and other operational costs.

To calculate profits, one must compare total revenue and total costs. Profits or losses are determined by subtracting total expenses (including COGS) from total income. Understanding this calculation is vital to assess a company’s financial health and making informed business decisions.