Profit and Loss Statements Guide With Free Template

A profit and loss (P&L) statement records a business’s revenue and expenses over a set period. The final figure shows whether the business made a profit or took a loss. 

For owners managing money coming in and bills going out, a P&L statement puts those results in one place. This guide covers how to read a profit and loss statement, with examples and a free template to use. 

What is a profit and loss statement?

A P&L statement, also called a P&L report or an income statement, calculates net income or loss over a month, quarter, or fiscal year. A P&L statement is one of three main financial statements. The other two are the balance sheet and cash flow statement. 

In a 2025 Shopify survey of store owners, 42% cited ensuring profitability as their top business goal.* Business owners use P&L statements to:

• Track profitability. Measure whether revenue exceeds expenses for each reporting period.
• Control costs. Compare expense categories and identify where spending has increased.
• Prepare for financing conversations. Bring current revenue, expense, and net income figures to lender discussions.

The Federal Reserve’s 2025 Small Business Credit Survey found that 60% of small employer firms applied for financing in the previous 12 months. Among applicants, 42% received the full amount requested.

Profit and loss statement vs. cash flow statement

A cash flow statement is concerned with the money that moves into and out of a business over a period of time. It has a limited scope compared to a P&L sheet, dealing only with transactions that affect a business’s cash balance.

The two can also have different beginning and end points. A P&L statement begins with revenue and ends with net income. If using the indirect method of calculation, a cash flow statement starts with net income and measures increases and decreases in cash to arrive at an ending cash balance.

Profit and loss statement vs. balance sheet

The key to understanding the difference between a P&L statement and a balance sheet is time. A P&L statement shows net income over a period of time, while a balance sheet is a snapshot of a company’s financial position at one specific moment.

Your balance sheet measures current assets and liabilities, but it doesn’t tell you whether or not you’ve made or lost money this month, quarter, or year.

Elements of a profit and loss statement

A P&L statement reads from top to bottom, beginning with operating revenue. Each cost and expense is then deducted until the statement reaches net income or loss.

The statement includes the following elements:

• Operating revenue
• Cost of goods sold
• Gross profit
• Operating expenses
• Non-operating expenses and income
• Taxes
• Net income

Operating revenue

Revenue on a P&L statement may come from operating or non-operating activities. Operating revenue appears first and comes from the company’s core business activities, such as selling products or providing services.

Cost of goods sold

Cost of goods sold (COGS) covers the direct costs of producing goods or delivering services. Materials and labor are common examples. Service businesses may label the line cost of revenue or cost of services. COGS appears separately from operating expenses.

Gross profit

Gross profit appears after COGS. It shows how much revenue remains after direct costs. The figure can help a business review its product pricing.

Operating expenses

Operating expenses cover day-to-day costs outside COGS. Rent and administrative payroll are common examples.

Non-operating expenses and income

Non-operating expenses and income come from activities outside the company’s main business. They can include, for example, recurring expenses like interest on debt payments, or one-time transactions like the sale of an asset.

Taxes

A P&L statement subtracts the income tax expense for the reporting period.

Net income

Net income, or the bottom line, is the final figure on a P&L statement. It shows the company’s profit or loss for the reporting period.

Types of profit and loss statements

P&L statements vary by accounting method and statement format. The accounting method can decide when revenue and expenses are recorded. Format sets how those figures are grouped and calculated. 

Cash and accrual are the two main accounting methods. Using the same method across reporting periods makes the results comparable.

1. Cash method

With cash basis accounting, revenue is recorded when payment is received. Expenses are recorded when paid. Suppose an online store delivers a wholesale order on March 28 and receives payment on April 5. The revenue appears on the April or second-quarter P&L statement

2. Accrual method

Under accrual accounting, revenue is recorded when earned. Expenses are recorded when incurred. Using the same wholesale order, the store records the revenue on its March or first-quarter statement when the order is delivered, even if payment doesn’t arrive until later. 

3. Single-step format

A single-step P&L statement adds all income and subtracts all expenses in one calculation, which is net income.

4. Multistep format

A multistep P&L statement separates operating activity from non-operating activity. It calculates gross profit and operating profit. Non-operating items and taxes then lead to net income.

How to create a profit and loss statement

Businesses operating on different systems or multiple sales channels may need to compile records from more than one source. The US Chamber of Commerce’s 2025 Empowering Small Business report found that 58% of small businesses use four or more technology platforms. Many businesses make use of financial management tools such as QuickBooks for generating reports.

Follow these steps to create a P&L statement:

1. Choose the reporting period and accounting method

Select the month, quarter, or year the statement will cover. Be sure to keep records for every subsequent interval. Then choose cash or accrual accounting. If you’re unsure which method is best, consult an accountant. 

2. Gather source records

Collect sales reports and bank statements for the period. Add receipts, invoices, and include payroll and inventory records when they apply.

The IRS says businesses may use any recordkeeping system suited to their needs if it clearly shows income and expenses. The agency also says business books must show gross income, deductions, and credits. Supporting documents should verify each entry.

3. Calculate revenue

Add sales from every channel. Subtract discounts and returns to calculate net sales. Non-operating income may also be included.

Shopify store owners can use Shopify’s finance reports to review sales and payments for a selected date range. The Finance Summary also includes gross profit data. Add revenue from marketplaces or other channels that fall outside the selected Shopify report.

4. Calculate COGS and expenses

Use inventory and purchasing records to calculate COGS. Include the direct cost of products sold during the reporting period, then enter operating expenses such as rent and payroll. Record interest, tax expenses, and other non-operating items on separate lines.

Shopify’s gross profit breakdown uses net sales with recorded costs to calculate COGS and gross profit. Check product cost data before using those figures and add business expenses recorded outside Shopify.

5. Choose the statement format and calculate profit

A single-step format is enough for a business focused on the final net income figure. Ecommerce businesses that track inventory may want to choose a multistep format because it separates gross profit from store expenses. 

Tools can reduce manual entry when sales data needs to move into accounting software. Bookkeep’s Accounting+Inventory app can post daily summary entries to systems such as QuickBooks Online and Xero. It can also reconcile payouts by order and recognize revenue by fulfillment status.

6. Review and save the statement

Check each category against source records. Confirm that entries like refunds and payment processing fees appear once. 

Compare the P&L statement with previous periods to search for unusual activity. Save the statement with the records used to prepare it. An accountant or bookkeeper can review the finished report before it’s used for taxes or financing.

Free simple profit and loss statement template

Download a free P&L statement template to organize revenue and expenses for any reporting period. Built-in formulas calculate each subtotal and the final net income or loss as figures are entered.

To use the template:

1. Replace the bracketed title text with the business name and reporting period.
2. Set the month, quarter, or year in the column header.
3. Enter each figure in the matching row. Hover over marked cells to read category notes.
4. Check the automatic totals for gross profit, operating profit, and net income.
5. Remove the instruction panel before saving or sharing the finished statement.

Example of profit and loss statement

In a 2025 Shopify survey of store owners, fewer than half reported tracking profit margin, traffic, average order value, or conversion rate.* A P&L statement provides the revenue and profit figures used to calculate gross and net profit margins.

The example below shows first-quarter results for a fictional ecommerce business that sells presidential busts carved from potatoes.

Read the statement from top to bottom:

1. Operating revenue: The store earned $43,000 from product sales during the first quarter.
2. Gross profit: COGS of $18,000 left $25,000 in gross profit. Dividing gross profit by revenue gives a gross margin of 58.1%.
3. Operating profit: Operating expenses totaled $1,583. Deducting them from gross profit left $23,417.
4. Income before taxes: A $250 loan interest charge reduced operating profit to $23,167.
5. Net income: After $6,950 in income tax expenses, the store reported $16,217 in net income. Dividing net income by revenue gives a net profit margin of 37.7%.

A positive net income means revenue exceeded all costs and expenses. A negative net income would mean the business recorded a loss.

*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.