The profit and loss statement (also called an income statement) tells you whether your business made or lost money over a period, and why. Once you can read it, you can spot problems early and make far better decisions. Here is what each part means.
What is on a profit and loss statement?
A P&L flows top to bottom:
- Revenue – total sales or income
- Cost of goods sold (COGS) – direct costs of delivering your product or service
- Gross profit – revenue minus COGS
- Operating expenses – overhead like rent, admin, and marketing
- Net profit – what is left after all expenses
What is the difference between gross profit and net profit?
Gross profit is what remains after the direct costs of the work; net profit is what remains after all costs. Gross profit tells you if your pricing and job costs work; net profit tells you if the whole business is profitable. Both matter, for different reasons.
What should you look for on your P&L?
Watch your gross margin percentage over time, compare months to spot trends, and flag any expense category creeping up faster than revenue. A P&L is most powerful when you review it every month, not once a year at tax time.
We deliver monthly P&Ls in plain English—and explain what they mean for your decisions. See our bookkeeping & reporting services.