What is a profit and loss statement?
A plain-English breakdown of the most important financial statement for a small business.
Direct answer
A profit and loss statement (P&L) shows how much money your business made (revenue), how much it spent (expenses), and what's left (profit or loss) over a specific time period — usually a month, quarter, or year. It's the single most useful document for understanding your business's health.
Simple explanation
A P&L answers one question: did the business make money in this period? Revenue at the top, expenses in the middle, profit (or loss) at the bottom. That's the whole structure.
What goes on a basic P&L
- 1
Revenue
All money earned from selling products or services during the period.
- 2
Cost of goods sold (COGS)
Direct costs of producing what you sold — materials, direct labor, etc. Service businesses may not have this.
- 3
Gross profit
Revenue minus COGS. Tells you how profitable the core product/service is before overhead.
- 4
Operating expenses
Rent, software, marketing, payroll, supplies — the costs of running the business.
- 5
Net profit (or loss)
Gross profit minus operating expenses. The bottom line. Positive = profit, negative = loss.
Summary
- •A P&L = revenue, minus expenses, equals profit or loss.
- •Run one every month so you spot trends early.
- •Gross profit shows how healthy the core offer is.
- •Net profit is the true bottom line for the period.