What is a profit and loss statement?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A profit and loss statement shows a business's income and expenses over a period, such as a month, a quarter or a financial year, and the profit or loss left after expenses are taken from income. It is also called an income statement or a P&L.
A typical profit and loss statement starts with sales, takes away the direct cost of those sales to show gross profit, then takes away running costs such as rent and wages to show net profit.
Profit is not the same as cash. A business can show a profit for the year and still run short of cash if its customers pay slowly, which is why the profit and loss statement is read alongside a cash flow statement.
In Australia
business.gov.au describes the profit and loss statement as a financial statement listing sales and expenses, which you can use to work out the gross and net profit of a business.
Its guide to managing cash flow suggests regularly reviewing your main financial documents, such as your profit and loss statement, and comparing estimated and actual income and costs to spot shortfalls early.
Worked example
| Item | Amount (AUD) |
|---|---|
| Sales | 120,000.00 |
| Cost of sales | 48,000.00 |
| Gross profit | 72,000.00 |
| Operating expenses | 51,500.00 |
| Net profit | 20,500.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Treating profit as cash in the bank.
- Comparing periods of different lengths, such as a five-week month with a four-week month, without allowing for it.
Related terms
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Guide to managing cash flow
business.gov.au, Australian Government. Current at 15 October 2026, released 22 December 2025. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.