Definitions of terms

Review the definitions of these financial terms that appear on a typical P&L.

Revenue
Money you receive in payment for your products or services.

Operating Expenses
Expenses that rise or fall based on your sales volume. Also known as Variable Expenses.

Gross Profit Margin
Amount left when you subtract operating expenses from revenues. Also known as Operating Margin

Overhead, or Fixed Expenses
Costs that don’t vary much monthly or rise or fall with sales. Possible examples: rent, insurance.

Operating income
Money received after deducting operating and overhead expense.

Other income or expenses
Money related to a business’ finances, for example interest earned on savings or paid on loans.

Pre-tax income
Money earned before federal and state governments take their share.

Income taxes
Money paid to federal and state governments.

Net income (after taxes)
The profit earned in the period minus all expenses. The final amount on most P&Ls.

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