Glossary
What is a profit and loss statement?
The report most owners read first: what came in, what it cost and what was left over, for the period you choose.
Updated
In short
A profit and loss statement shows a business's income and expenses over a period and the profit or loss that results. SimpleERP builds the P&L from posted journals for any period and compares it with the previous one.
A profit and loss statement, or P&L, shows a business's income and expenses over a period, such as a month, a quarter or a financial year, and the profit or loss that results. It typically runs from sales, less cost of goods sold to gross profit, then less operating expenses to net profit. It is the first report most owners read, and the one a lender asks for alongside the balance sheet.
Profit and loss statement: a worked example
Harbour Steel Furniture, a fictional manufacturer with a calendar financial year, for the nine months to September 2026, in US dollars:
| Line | Amount |
|---|---|
| Sales | $184,260 |
| Less cost of goods sold | $103,890 |
| Gross profit | $80,370 |
| Salaries and wages | $24,800 |
| Rent | $7,200 |
| Power and fuel | $3,840 |
| Other expenses | $3,250 |
| Total expenses | $39,090 |
| Net profit | $41,280 |
Gross margin is 43.6% and net margin 22.4%. The $41,280 also appears in equity on the balance sheet at 30 September.
FAQ
Questions, answered
Is profit the same as cash in the bank?
No. Profit counts sales when invoiced and costs when incurred. Cash moves when customers pay and you pay suppliers. Unpaid invoices, stock bought ahead and loan repayments all make cash differ from profit, sometimes by a lot.
What is the difference between gross profit and net profit?
Gross profit is sales less the cost of the goods sold. Net profit is gross profit less every other expense, such as salaries, rent, power and depreciation. Gross profit tells you if pricing works; net profit tells you if the business does.
Is a P&L the same as an income statement?
Yes. Profit and loss statement, P&L, profit and loss account and income statement are names for the same report. Some company laws and accounting standards call it the statement of profit and loss or the statement of comprehensive income.
How often should I look at my P&L?
Monthly, against the previous month and the same month last year. A monthly view catches a slipping margin or a rising expense while it can still be fixed. It needs cost of goods sold and depreciation posted each month to be meaningful.
Related
Keep reading
Cost of goods sold (COGS)
The cost of the stock sold in a period, subtracted from sales for gross profit.
Read moreBalance sheet
Assets, liabilities and equity on one date, always in balance.
Read moreReports & dashboard
A morning dashboard and a catalogue of reports, each with filters, print and CSV export.
Read more
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