The Profit & Loss (P&L) account — also called the income statement — shows how much a business earned and spent over a period, and whether it made a profit or a loss.
This guide explains the structure of a P&L and its key lines.
What is the profit & loss account?
The P&L starts with revenue, subtracts the cost of goods sold to get gross profit, then subtracts operating expenses to get operating profit, and finally accounts for interest and tax to arrive at net profit.
It is one of the three primary financial statements, alongside the balance sheet and cash flow statement.
P&L structure
| Line | Meaning |
|---|---|
| Revenue | Total sales/income |
| Cost of goods sold | Direct cost of what was sold |
| Gross profit | Revenue − COGS |
| Operating expenses | Salaries, rent, marketing, etc. |
| Net profit | Bottom-line profit after interest and tax |
Frequently asked questions
What is the difference between gross and net profit?
Gross profit is revenue minus direct costs; net profit is what remains after all operating expenses, interest and tax.
Is the P&L the same as the income statement?
Yes, they are two names for the same statement.