A profit and loss statement (P&L), also called an income statement, answers a simple question: over a period of time, did the business make or lose money, and why?
You don’t need to be an accountant to read one. Once you know what each line means, a P&L becomes the quickest way to see whether prices, costs, and spending are heading in the right direction.
What a P&L Shows — and What It Doesn’t
- A P&L covers a period — a month, a quarter, or a year.
- A balance sheet is a snapshot of what the business owns and owes on a single date.
- A cash flow statement shows the actual money that came in and went out.
All three matter. This guide is about the first.
The Lines, Top to Bottom
Revenue
Sales for the period, after returns and discounts. If you are GST-registered, the GST you collect is not your revenue — you collect it on behalf of the government — so revenue is shown excluding it.
Cost of Goods Sold (COGS)
What the goods you sold cost you to buy or make. It is the cost of the items sold in the period, not everything you purchased — stock still on the shelf is not yet a cost.
Gross Profit and Gross Margin
Gross profit is revenue minus COGS. Gross margin is gross profit as a percentage of revenue. It tells you how much each sale contributes before overheads, and it is the first number to check when you change prices or suppliers.
Operating Expenses
The costs of running the business that aren’t tied to individual products: rent, salaries, electricity, internet, marketing, repairs, and so on.
Operating Profit
Gross profit minus operating expenses — what the core business earns from its normal activity.
Net Profit
Operating profit after other income and costs such as interest on loans, depreciation of equipment, and tax. This is the bottom line.
A Worked Example
| Line | Amount | % of revenue |
|---|---|---|
| Revenue (excluding GST) | ₹10,00,000 | 100% |
| Cost of goods sold | ₹6,20,000 | 62% |
| Gross profit | ₹3,80,000 | 38% |
| Rent | ₹90,000 | 9% |
| Salaries | ₹1,50,000 | 15% |
| Electricity & internet | ₹25,000 | 2.5% |
| Marketing | ₹20,000 | 2% |
| Total operating expenses | ₹2,85,000 | 28.5% |
| Operating profit | ₹95,000 | 9.5% |
| Interest on loan | ₹15,000 | 1.5% |
| Net profit before tax | ₹80,000 | 8% |
Reading it: each ₹100 of sales leaves ₹38 after the cost of goods, ₹9.50 after running costs, and ₹8 before tax. Salaries are the biggest overhead. A one-point improvement in gross margin — from better buying or fewer discounts — would add ₹10,000 to profit, more than the entire marketing budget.
Why Profit Isn’t the Same as Cash
A profitable quarter can still leave the bank account short. Common reasons:
- Credit sales count as revenue when invoiced, but the cash arrives later.
- Buying stock uses cash now, but becomes a cost only when the stock is sold.
- Loan repayments reduce cash, but only the interest appears on the P&L.
- Equipment is paid for upfront, but its cost is spread over several years as depreciation.
That is why it pays to watch receivables alongside profit — see our guide to managing receivables and overdue invoices .
Questions to Ask Every Month
- Is revenue up or down compared with the same period last year, not just last month?
- Has gross margin moved? If so, is it prices, discounts, product mix, or supplier costs?
- Which expense grew fastest, and was that planned?
- Are there one-off items making this period look better or worse than it really was?
Key Takeaways
- Revenue − cost of goods sold = gross profit; − operating expenses = operating profit; − interest, depreciation, and tax = net profit.
- Gross margin is the quickest health check on pricing and buying.
- Compare periods and percentages, not just rupee amounts.
- Profit is not cash — watch receivables and stock alongside the P&L.
How BizPro Helps
BizPro’s profit and loss report is built from the data you already enter: revenue from your invoices, cost of goods sold estimated from each product’s cost price, and your approved expenses. It is a management view for running the business day to day — not a substitute for statements prepared by your accountant — and sits alongside a cash flow report per payment account. See business reports and expense management .