Profit and Loss Statement

The report of revenue, costs and profit over a period.

Also known as: profit and loss, P&L, income statement

The profit and loss statement (P&L) reports revenue minus costs over a period: top-line revenue, cost of goods sold, gross profit, operating expenses, and the bottom line. It answers “did we make money?” — distinct from “do we have money?”, which is the cash flow statement’s job. Profitable companies die of cash timing; cash-rich companies die of unprofitability. Watch both.

revenue − COGS = gross profit → − operating expenses = operating profit → −/+ other = net

Read it in layers: gross margin (is the unit economics healthy?), operating leverage (does growth improve margins?), and net (what actually accumulated). A P&L reviewed monthly turns surprises into trends with time to act.

The classic mistakes:

Cashadeceived as profit. Big prepayment booked as immediate profit flatters the month and starves later ones. Recognize revenue as earned (accrual), especially annual deals.
Founder labor invisible. Unpaid founder work hides true costs — the P&L looks profitable because salaries are missing. Impute market salaries in planning even if unpaid in cash.
Vanity revenue. Gross merchandise or pass-through counted as revenue inflates the top line meaninglessly. Report net revenue honestly; reconcile to cash.
Annual surprise P&L. First real look twelve months in reveals a year of drift. Monthly review from the first transaction — the habit matters more than the tool.
Confusing accounting profit with runway. Profitable on paper while cash runs out (receivables!) kills just as dead. Pair every P&L review with cash position.

Monthly rhythm: close the books, read P&L beside cash flow, note the one number that moved most and why. See financial model for projecting forward from here.