Profit and Loss Statement

What is a profit and loss statement?

A profit and loss statement (P&L), also called an income statement, summarizes your revenue and expenses over a specific period—usually monthly, quarterly, or annually. The bottom line shows whether you made a profit or took a loss. It answers the fundamental question: "Did we make money?"

The P&L is one of the three essential financial statements every business should understand.

P&L structure

A basic P&L follows this flow:

• Revenue — All income from sales and services
• − Cost of Goods Sold — Direct costs of delivering services
• = Gross Profit — Revenue minus direct costs
• − Operating Expenses — Overhead, admin, marketing costs
• = Operating Income — Profit from operations
• − Taxes and Other — Tax obligations and non-operating items
• = Net Profit (or Loss) — The bottom line

Using your P&L

Review your P&L regularly to spot trends, identify problem areas, and make informed decisions. Are expenses growing faster than revenue? Is gross margin declining? Which months are most profitable? The P&L provides the data to answer these questions.