What is a profit and loss statement?
A profit and loss statement, or P&L, is the financial statement that shows a company's revenue, costs and the resulting profit or loss over a period, such as a month, quarter or year. It starts with sales, deducts the cost of sales and operating expenses, then finance costs and tax, to arrive at net profit.
Also calledP&Lincome statementstatement of profit or loss
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- Covers
- A period, such as a month or year
- US name
- Income statement
- IFRS 18 subtotals
- Operating profit, and profit before financing and tax
How a profit and loss statement works
The statement is built from the income and expense accounts in the general ledger. A typical layout runs from revenue, through cost of sales to gross profit, then operating expenses such as salaries, rent and depreciation to operating profit, then interest and tax to profit for the period. Under accrual accounting, revenue is recorded when it is earned and costs when they are incurred, so profit can differ sharply from the cash that came in. US companies usually call it the income statement; IFRS calls it the statement of profit or loss. IFRS 18, which replaces IAS 1 for annual periods beginning on or after 1 January 2027, sorts income and expenses into operating, investing and financing categories and requires two subtotals: operating profit, and profit before financing and income taxes. Accounting software produces the P&L directly from the ledger, by month, entity or department.
Common questions
What is the difference between a P&L and a balance sheet?+
The P&L covers a period and shows how much profit was made. The balance sheet is a snapshot at one date of what the business owns and owes. Profit for the period flows into retained earnings on the balance sheet.
Is profit the same as cash?+
No. Under accrual accounting, sales are counted when earned and costs when incurred, whether or not cash has moved. A profitable company can still run short of cash, which is why the cash flow statement is prepared alongside the P&L.
What is gross profit?+
Revenue minus the direct cost of the goods or services sold. Operating expenses, such as office costs and most salaries, are deducted after gross profit to reach operating profit.
Software that produces the profit and loss statement
XeroCloud accounting for small businesses with a large app ecosystem.Profile →
Intuit QuickBooksSmall business accounting covering books, invoicing and payroll.Profile →
NetSuiteCloud ERP for mid-market companies outgrowing basic accounting.Profile →
Sage IntacctMulti-entity cloud financials with dimensional reporting.Profile →Part of Accountio’s accounting technology coverage · Glossary
