Profit & Loss Statement
Revenue, cost of sales and expenses down to net profit.
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For the period [date] to [date]
| Revenue | |
|---|---|
| [add one line per head] | |
| Total revenue | $ 0.00 |
| Cost of sales | |
|---|---|
| [add one line per head] | |
| Total cost of sales | $ 0.00 |
| Gross profit | $ 0.00 |
| Operating expenses | |
|---|---|
| [add one line per head] | |
| Total expenses | $ 0.00 |
| Net profit | $ 0.00 |
Gross margin: —. Net margin: —.
What is a Profit & Loss Statement?
A profit and loss statement shows what you earned in a period, what it cost to earn it, what you spent running the business and what was left. It is the first document anyone outside the business asks for — a lender, a buyer, a landlord checking covenants, an accountant preparing your return. It is also where gross margin lives, which is how you find out whether the problem is your pricing or your overheads.
Sole traders, partnerships, limited companies and charities all produce one, monthly for management and annually for statutory purposes. It goes into loan and mortgage applications, grant reports, tender submissions and due diligence when a business is being sold. Internally it is the document a management meeting works from, because it is the only place where revenue, direct costs and overheads sit in one column and can be compared to last month and last year.
The management version is free-form; the filed version is not. Format and terminology are set by the framework you report under — an income statement under IFRS, FRS 102 in the UK, the Schedule III format under India's Companies Act, a statement of activities for US non-profits. Filing obligations, audit thresholds, whether abridged accounts are permitted and what must be publicly visible all vary by country and company size. Check what applies to your entity with your accountant.
Profit is not cash. A profitable month can coincide with an empty bank account, because the statement recognises income when earned rather than when paid and excludes capital purchases and loan principal entirely. It is not a balance sheet, so it says nothing about what you own or owe. And it is not a tax computation: taxable profit is usually a different number, because some costs are disallowable and tax depreciation rarely equals the depreciation you charged.
What to put in a Profit & Loss Statement
These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.
| Field | What goes in it |
|---|---|
| Business name | For example: Barton Supply Co. |
| Your address | For example: Unit 7, Barton Road, Columbus, OH 43212 |
| Period from | Free text |
| Period to | Free text |
| Revenue | One per line: Head | Amount |
| Cost of sales | One per line: Head | Amount |
| Operating expenses | One per line: Head | Amount |
How to write a Profit & Loss Statement
Fix the period and the accounting basis
Head the statement with the exact period — the month of August, or the year ended 31 March — and state whether it is prepared on an accruals or a cash basis. On accruals, income belongs to the month the work was done and costs to the month they were incurred, regardless of when money moved. Mixing the two in one statement makes gross margin meaningless.
Split cost of sales from overheads
Cost of sales is what varies with what you sold: materials, subcontractors on a job, the wages of the people making or delivering the product, carriage. Overheads are what you pay whether you sell anything or not: rent, insurance, the office manager's salary, accountancy fees. Putting production wages in overheads leaves gross margin looking excellent and the business unprofitable, with no visible reason.
Show gross profit on its own line
Revenue minus cost of sales, stated as a figure and as a percentage of revenue. This is the most diagnostic line in the statement, because it moves when pricing, discounting, input costs or product mix change and barely moves when overheads do. Track the percentage month by month — a margin sliding two points a quarter is a problem long before net profit shows it.
Keep one-offs out of the operating section
Show unusual items — a legal settlement, a grant, profit on selling a vehicle, a restructuring cost — separately below the operating result rather than buried in the expense lines. Otherwise a single event distorts the trend and every comparison to prior periods becomes an argument. A reader should be able to see what the business does routinely and what happened once.
Add a comparative column
A single period on its own is nearly unreadable. Put the same period last year beside it, and for management accounts add year to date and budget as well. The comparison turns a number into information: rent of £4,200 means nothing until it sits next to £3,500 for the same month last year, and then it prompts the right question.
Common mistakes
- Classifying direct production or delivery labour as an overhead inflates gross margin and hides the fact that the work itself is unprofitable at current prices.
- Including VAT or GST in revenue overstates income by the tax rate and produces a profit figure that will not survive the first review.
- Recording capital purchases as expenses understates profit in the year of purchase and overstates it thereafter, and leaves the asset missing from the balance sheet.
- Presenting a single period with no comparative gives a reader nothing to judge it against, so the statement generates opinions rather than decisions.
- Treating the accounting profit as the amount you owe tax on ignores disallowable costs and the gap between book and tax depreciation, and the eventual bill is a surprise.
Frequently asked questions
What is the difference between a profit and loss statement and an income statement?
They are the same document under different names. Profit and loss, or P and L, is the common term in the UK, India, Australia and among small businesses generally. Income statement is used under IFRS and in US reporting. Statement of comprehensive income is a broader version that also captures gains and losses not passing through profit for the year.
What is the difference between gross profit and net profit?
Gross profit is revenue less the direct costs of delivering it, so it measures whether what you sell makes money at the price you sell it. Net profit is what remains after overheads, interest, depreciation and other operating costs, so it measures whether the business as a whole makes money. A business can have healthy gross margin and negative net profit.
Does a profit and loss statement show cash?
No. It shows income earned and costs incurred in a period, regardless of when money moved. Unpaid invoices count as revenue, capital purchases and loan repayments do not appear, and depreciation reduces profit without any cash leaving. For the cash picture you need a cash flow statement or forecast alongside it.
What period should a profit and loss statement cover?
Monthly for managing the business, and your financial year for statutory accounts. Many businesses show the month, the year to date and the same period last year in one statement. Whatever you choose, state the period exactly in the heading, since one labelled with just a year leaves the reader unsure whether it is calendar or financial.
Do I include the owner's salary or drawings?
It depends on the structure and the local rules. A salary paid to a director through payroll is normally a cost in the statement, while drawings taken by a sole trader or partner are usually a distribution of profit rather than an expense and appear elsewhere. The treatment affects your tax position, so confirm it with your accountant.
This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.