Profit and loss statement (P&L)

It shows your financial results for a month, quarter, or year. It lists revenue, costs, expenses, and the resulting net income or loss.

On the accrual basis, which U.S. GAAP requires, revenue is recorded when earned and expenses when incurred, regardless of cash movement. Some smaller businesses keep cash-basis books instead, which record items when cash moves. Loan principal payments and owner draws do not appear as expenses here.

Equipment purchases are generally spread over time as depreciation. On the accrual basis, inventory generally becomes an expense when sold, though write-downs and losses may be recognized sooner. Profit figures often differ from cash flow. Lenders often compare this document with your tax returns. It is read alongside the balance sheet and cash flow statement for a fuller view.