P&L (income statement)

Also called: P&L, income statement, profit and loss statement

The report of revenue, costs and profit for a period, built on the accrual principle: it shows what was earned, not what arrived in the bank.

A P&L (profit and loss statement, also called the income statement) shows what a company earned over a period and what it cost to earn it. It reads like a staircase: revenue at the top, then groups of costs subtracted in a fixed order. Each landing has a name, and each answers its own question.

The usual steps: revenue − cost of revenue = gross profit (does delivery pay?); − operating expenses = EBITDA (does running the company pay?); − depreciation and amortization = operating profit, or EBIT (does the business pay once the wear of what it owns is counted?); − interest and taxes = net profit (what is left for the owners). Divide any landing by revenue and you get a margin, which makes months, product lines and companies comparable.

The P&L is built on accrual accounting: a sale counts when it is delivered and a cost when it is incurred, not when money moves. That makes it the right report for "is the business profitable?" and the wrong one for "can we pay salaries on Friday?". The second question needs the cash flow statement and the balance sheet, where prepayments, unpaid invoices and equipment bought for cash show up.

Example

Klasna, an online tutoring school, closed its autumn quarter (September–November 2026) with this P&L:

Line	UAH	% of revenue
Revenue	6,832,760	100%
Cost of revenue	−1,724,061
Gross profit	5,108,699	74.77%
Operating expenses	−3,350,000
EBITDA	1,758,699	25.74%
Depreciation (laptops)	−54,000
Operating profit	1,704,699	24.95%

Step by step: 6,832,760 − 1,724,061 = 5,108,699; 5,108,699 − 3,350,000 = 1,758,699; 1,758,699 − 54,000 = 1,704,699. Klasna has no loans, so the staircase stops at operating profit.

The total is only the start. 629,310 of the revenue came from prepaid lessons that expired unused; without that line, operating profit would be 1,075,389.

Common mistakes

Reading only the bottom line. A total can rest on a one-off line; check what each revenue line is made of.
Treating profit as cash. Prepaid lessons, unpaid invoices and equipment bought for cash move the bank on a different schedule.
Putting GMV on the top line. For a marketplace, what customers paid through the platform is not its revenue.
Showing EBITDA alone. It leaves out depreciation, yet worn-out equipment has to be bought again. Show both.
Comparing margins without asking how revenue is presented. Gross and net presentation change every margin while profit stays the same.

Learn it in the course

How to read a P&L, top to bottom · How to read a profit and loss statement: revenue, cost of revenue, gross profit, operating expenses, EBITDA and operating profit, and what the P&L doesn't tell you.
Case: a board report for a new board member · A board report on the quarter: rebuild Klasna's autumn P&L from raw lines, separate what will repeat from what won't, and back the memo with numbers.
Profit is not cash: net income vs cash flow · Net income vs cash flow, month by month: how accruals, prepayments, invoices and equipment make the P&L and the bank disagree, and how to get from one to the other.
The cash flow statement and the three financial statements · How the three financial statements link, with a cash flow statement example: operating, investing and financing cash, built from profit with the indirect method.
Case: profitable on paper, short of cash in August · A year of profit and cash side by side: find what causes the cash flow problems, size the August gap and write a plan to fix it without panic borrowing.