Profit and loss statement
The report that shows revenue minus expenses over a period of time — whether the business made or lost money, and where the money came from and went.
What profit and loss statement means.
The profit and loss statement (P&L), also called the income statement, shows a business’s revenue, its expenses and the resulting profit or loss over a period of time — a month, a quarter or a year.
IRS Publication 583 (Rev. December 2024) gives the one-line version: “An income statement shows the income and expenses of the business for a given period of time.” The SEC’s small-business office, in its income-statement primer released September 2024, reduces it to an equation: “Revenue – Expenses = Net Income (Loss).” In practice the statement runs from revenue, less cost of goods sold, to gross profit; less operating expenses, to operating profit; and on down to net income. Unlike the balance sheet, which is a snapshot at a single moment, the P&L covers a span of time and resets each period.
It only tells the truth if the books do.
The P&L is the report owners read most — but it is only as accurate as the bookkeeping under it. Miscategorized expenses, revenue recorded in the wrong period, or personal spending mixed into the business all distort it directly. A P&L built on unreconciled books is a confident-looking guess.
It also depends on which basis you read it on: the same period can show a different profit on cash vs. accrual. Reading the P&L on the right basis, with categories that map to how you actually run the business, is what makes it a decision tool rather than a tax artifact.
A month’s P&L: a worked example.
Illustrative figures, not a client file.
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The report
Take a contractor whose March P&L shows revenue of $120,000, cost of goods sold of $72,000 (materials and subcontractors) and gross profit of $48,000. Operating expenses — office rent, insurance, software, office wages — total $31,000, leaving operating profit of $17,000. Interest of $600 brings net income to $16,400.
- 02
The same month on the cash basis
Run on the cash basis, and assuming every March bill was paid in March, the same month shows revenue of $96,000, because $24,000 of March invoices were not yet collected. Net income becomes a loss of $7,600. Same transactions, different basis — which is why every P&L you act on should say which basis it is on.
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What to check before believing it
Revenue ties to invoices, not to deposits; materials and subcontractors sit in cost of goods sold, not in operating expenses; and the bank and card accounts behind the month are reconciled. If any of those fail, the $16,400 is a guess.
How the P&L goes wrong in QuickBooks.
Income counted twice
Deposits added from the bank feed as new income when the invoice was already recorded double the month’s revenue and leave the invoice open.
Costs on the wrong side of gross profit
Materials and subcontractors booked as operating expenses, or office costs booked as cost of goods sold, make gross margin look better or worse than it is and break month-to-month comparison.
Balance-sheet items run through the P&L
Loan principal, owner draws and equipment purchases expensed in full, so profit is understated and the balance sheet is wrong at the same time.
A P&L you can act on
Monthly statements built on reconciled, correctly categorized books are TechBrot’s financial statements service; a P&L that has been wrong for a while starts with a cleanup.
Profit is not cash.
A profitable P&L does not mean money in the bank. Profit can be tied up in unpaid receivables, inventory, or loan principal that never touches the P&L. It is a common surprise for owners — and the reason the P&L is read alongside the balance sheet and cash, not alone.
Profit and loss statement questions.
Is a P&L the same as an income statement?
Yes. The SEC’s small-business primer describes an income statement as “sometimes called a profit and loss statement,” and QuickBooks names the report Profit and Loss. Both show revenue, expenses and the resulting profit or loss for a period.
Why does my P&L show a profit when I have no cash?
Because profit is not cash. Revenue can be sitting in unpaid invoices, and cash can leave through loan principal, owner draws and inventory purchases that never appear on the P&L. The cash flow statement reconciles the two.
Does your P&L match reality?
A QuickBooks ProAdvisor checks whether your categories and basis make the P&L a real decision tool — or whether a cleanup is needed first. Written fixed-fee scope.
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