Glossary

Profit and loss account

The profit and loss account (income statement) shows revenue minus costs over a period, ending in profit or loss — the headline of whether the business made money.

2 min read

Income − costsOver a period

Ends in profit/lossThe performance view

Definition

The profit and loss account reports revenue, cost of sales, overheads and the resulting operating profit and net profit over a period. It is one of the three core statements alongside the balance sheet and cash flow statement.

In plain terms

It answers "did we make money, and where did it go?" But remember: profit is not cash — a profitable P&L can still sit alongside a tight bank balance.

Why it matters for your company

Lenders read the P&L for margin and profitability trends. Watch gross and net margin over time, not just the top line. Model your margin with the net margin calculator.

Frequently asked questions

Is the profit and loss account the same as cash flow?

No. The P&L measures profit under the accruals concept, recognising income and costs when earned or incurred. Cash flow tracks actual money in and out. A business can be profitable yet short of cash.