Profit and Loss Statement

Profit and Loss Definition

A profit and loss statement (P&L), also called an income statement, summarizes your business's revenues, costs, and expenses over a specific period. The bottom line shows whether you made a profit (revenue exceeded expenses) or took a loss (expenses exceeded revenue). It's one of the three core financial statements every business needs.

Profit and Loss in Practice — Example

A dog grooming business reviews its monthly P&L. Revenue from grooming services: $14,000. Cost of goods sold (shampoo, supplies): $2,100. Gross profit: $11,900. Operating expenses: rent ($2,000), payroll ($5,500), utilities ($300), insurance ($200), marketing ($500). Total expenses: $8,500. Net profit: $3,400. The owner can see exactly where money came in and went out — and that the business made a $3,400 profit that month.

Why Profit and Loss Matters for Your Books

The P&L is the most looked-at report in small business accounting. It tells you the answer to the most basic question: am I making money? Not "do I have cash in the bank" (that's cash flow), but "is the business generating more value than it's consuming?"

Beyond the bottom line, the P&L reveals trends. Comparing P&Ls month over month, you can spot rising costs, revenue seasonality, or margin compression. These patterns help you make proactive decisions instead of reacting to surprises.

Lenders, investors, and potential buyers all start with the P&L. It's the first thing a bank asks for with a loan application. A clean, accurate P&L makes your business fundable, sellable, and manageable.

How Profit and Loss Shows Up in QuickBooks

In QuickBooks Online, go to Reports → Profit and Loss (or Business Overview → Profit and Loss). QBO generates this automatically from your recorded transactions. You can filter by date range, compare periods, and drill down into any line item. Customize columns to see month-by-month comparisons, year-over-year changes, or percentages of income. Export to Excel or PDF for sharing with your accountant.

Common Mistakes

Not reviewing it monthly — the P&L is only useful if you actually look at it regularly

Miscategorizing transactions — if expenses are in the wrong categories, your P&L shows the right total but wrong details

Confusing profit with cash — a profitable P&L doesn't mean you have cash; it means revenues exceeded expenses on an accrual basis

FAQ

Q: How often should I review my P&L? A: Monthly at minimum. Many business owners review weekly or even daily during busy seasons. The more frequently you review, the faster you catch problems.

Q: What's the difference between gross profit and net profit? A: Gross profit is revenue minus cost of goods sold (direct costs). Net profit is what's left after ALL expenses — including overhead, taxes, and interest. Gross profit shows production efficiency; net profit shows overall profitability.

Related Terms

Revenue

Profit Margin

Overhead

Statement of Cash Flows

Retained Earnings

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