Profit and Loss Statement (P&L)

A profit and loss statement shows how much a business earned, spent, and kept as profit over a period of time.

A profit and loss statement is often called a P&L or income statement. It focuses on performance over a period, such as a month, quarter, or financial year.

The Australian Government’s profit and loss statement guide explains it as a report that lists sales and expenses and shows whether the business is making money or losing money.

Where A Profit And Loss Statement Appears

You will usually see a profit and loss statement in:

monthly management reports
accountant and tax return work
budgets and forecasts
loan or investor discussions
pricing and margin reviews
business sale or valuation preparation

It sits beside the balance sheet and cash flow statement, but each report answers a different question.

How A Profit And Loss Statement Works In Practice

A P&L starts with income, then subtracts the costs and expenses connected with running the business. The result is profit if income is higher than expenses, or a loss if expenses are higher than income.

It may include lines such as sales, cost of goods sold, gross profit, wages, rent, software, advertising, depreciation, and net profit. The exact layout depends on the business and its chart of accounts.

Simple Example

A design studio has $18,000 in sales for April. It spends $4,000 on contractor costs, $2,200 on wages, $1,000 on software and subscriptions, and $800 on other expenses. Its April P&L shows $10,000 profit before any extra tax or year-end adjustments.

That does not mean $10,000 is sitting in the bank. Some invoices may still be unpaid, which is why cash flow needs a separate view.

Why A Profit And Loss Statement Matters

The P&L helps a business understand whether trading activity is working. It shows margins, overheads, seasonal changes, and whether price increases or cost reductions may be needed.

It also helps separate profit from cash. A business can show a profit while still being short on cash if customers have not paid or stock has been purchased upfront.

Easy Way To Remember It

The P&L answers: “Did the business make money during this period?”

How Gimbla Can Help

Gimbla connects invoices, bills, expenses, payroll, bank reconciliation, and accounts so profit and loss reports are based on current records instead of late spreadsheet updates.

Helpful Gimbla Guides

In Short

A profit and loss statement shows income, expenses, and profit or loss for a period. It is one of the clearest reports for understanding business performance.