Profit and loss

DEFINITION of Profit and loss

Profit and loss are two terms that are crucial to trading: the financial returns (or outgoings without returns) from any business enterprise or trade.


This kind of account is opened by recording the gross profit on the credit side or gross loss on the debit side.

For earning the net profit, a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are deducted from profit or added to gross loss and thus, the resultant figure will be net.

Expenses included in the account are, for example, selling and distribution expenses, sales tax, administrative expenses, for example. 

Hence, on the credit side, discount received, the commission received a profit on the sale of assets and more appear.

It is a common term used in trading and is extremely self-explanatory. It simply refers to the total good or bad finance.  Made by an individual or group over a certain time period, doesn’t matter.

Day traders like to boast about their profits, but two different types actually exist. And the difference between them can be the difference between a bunch of numbers on paper or real cash in the bank.


Profit and loss are calculated by taking the total revenue derived from an activity and taking away the total expenses.

Profit and loss = total revenue – total expenses

If the resulting number is negative, it is called a loss. If it is positive, it is a profit.

Profit and loss are major to traders in several ways.

They are derived from a position when it is closed dictates how much money has been made from the trade or how much it has ended up costing.

A business’s often referred to as P/L, is a key factor in evaluating its fundamentals.