Understanding Profit and Loss Statements

A Profit & Loss statement (also called an income statement) shows whether your business made or lost money over a specific period — a month, a quarter, or a year.

It starts with total income: everything the business earned from sales during that period. From there, it subtracts the cost of running the business — expenses like rent, software, salaries, and supplies — to arrive at net profit (or net loss, if expenses exceeded income).

A well-organized P&L groups expenses into logical categories, so a business owner can quickly see where money is actually going, not just the final total. This is where a proper Chart of Accounts matters — without it, a P&L becomes a wall of numbers instead of a useful decision-making tool.

Reviewing your P&L regularly — not just at tax time — is one of the simplest habits that separates businesses that make informed decisions from those flying blind.