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What is a Profit and Loss Statement (P&L)?

A Profit and Loss statement (P&L), also called an income statement, is a financial report that summarises a business's revenue, costs, and expenses over a specific period — usually a month, quarter, or year. It shows whether the business made a profit or a loss and is one of the three core financial statements.

The P&L follows a simple structure: Revenue at the top, costs and expenses subtracted progressively, and net profit (or loss) at the bottom. The key lines are Revenue, Cost of Goods Sold (which gives Gross Profit), Operating Expenses (which gives Operating Profit), and finally Tax and Interest (which gives Net Profit). Reading a P&L is reading the story of where money came in and where it went out.

The P&L is different from the balance sheet (a snapshot at a point in time) and the cash flow statement (which tracks only cash movement). The P&L covers a period — it tells you what happened between two dates. This is why comparing P&Ls period-over-period (this month vs last month, this quarter vs the same quarter last year) reveals trends that a single statement cannot.

Example

A bakery's monthly P&L shows €28,000 in revenue, €11,000 in ingredient costs (gross profit: €17,000), €9,000 in rent, wages, and utilities (operating profit: €8,000), and €2,000 in taxes (net profit: €6,000). The owner now knows the bakery is profitable and that ingredients are 39% of revenue.

Questions

What is the difference between a P&L and a balance sheet?

A P&L covers a period (e.g. January 1 – March 31) and shows profitability. A balance sheet is a snapshot at one moment (e.g. March 31) and shows what the business owns and owes. The P&L answers "did we make money?"; the balance sheet answers "what is our position?"

How often should I review my P&L?

Monthly at minimum. Waiting until year-end means problems go unnoticed for months — a slow leak in expenses or a declining margin is invisible without regular review. Most accounting software generates a P&L on demand.

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