P&L (Profit and Loss Statement)

What is a P&L Statement?

A profit and loss statement, or P&L, is another name for an income statement. It summarizes recognized revenue and expenses over a defined period, such as a month, quarter, or year, and arrives at a profit or loss under the accounting basis used.

Under accrual accounting, revenue is recognized when the applicable recognition criteria are met and expenses are matched or accrued under policy, not simply when cash is received or paid. A cash-basis statement uses cash activity more directly, but it still needs a clear policy and does not replace a cash-position or runway review.

Common subtotals include gross profit, operating profit or loss, earnings measures such as EBITDA, pre-tax result, and net income. The exact structure depends on the business model and reporting framework.

P&L versus cash flow statement

The P&L explains recognized financial performance. The statement of cash flows explains and reconciles cash movement through operating, investing, and financing activities. Accounts receivable, payables, prepayments, depreciation, asset purchases, debt, and equity can make the results differ.

Accrual basis versus cash basis

Accrual accounting records revenue and expenses when recognition criteria are met, subject to the accounting policy. Cash-basis reporting generally follows receipts and payments more closely. The chosen basis should be disclosed before periods or businesses are compared.

What do the major subtotals mean?

• Gross profit

  Revenue less COGS or cost of revenue under the company policy.

• Operating profit or loss

  Gross profit less operating expenses.

• EBITDA

  An earnings measure requiring a stated reconciliation and any adjustments.

• Net income

  The final profit or loss after all applicable period items.

Why it matters

The P&L helps a team understand revenue, direct-cost economics, operating-cost structure, and profitability over time. Budget-versus-actual review can show which lines moved and whether the plan or an operating action needs attention.

The statement cannot answer every cash question. A business can report profit while collections lag or while investing heavily in assets. Read it with the statement of cash flows, cash position, commitments, and runway.

Simplified statement relationship

Recognized revenue − COGS = Gross profit
Gross profit − Operating expenses ± Other applicable items = Net income or net loss

Illustrative monthly P&L

How RunwayCal helps

Common mistakes

• 1Treating recognized revenue as cash received.
• 2Assuming positive profit means the bank balance increased.
• 3Using gross profit, EBITDA, operating profit, and net income as interchangeable terms.
• 4Comparing P&Ls without checking accounting basis and classification policy.
• 5Treating a generated management statement as the accounting ledger.