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What is a P&L

Full name: Profit and Loss

Also known as: PnL, PNL, P and L, income statement, statement of profit or loss, profit and loss statement, P&L statement

Definition

A P&L (profit and loss statement, or PnL) sums up a business's revenue and expenses for a period and shows if it made or lost money. Profit on it is not cash.

Why it matters

A P&L shows whether the business model makes money over time, and where it leaks: in pricing, in overhead or in financing.

Common mistakes

Mixing private and business expenses, so the P&L no longer shows what the business itself earns.

Related terms

Worked exampleIllustration

A small business's P&L for one month

Profit and loss, one month

  • Revenue₪100,000
  • Cost of sales (40%)-₪40,000
  • Gross profit (60%)₪60,000
  • Operating expenses, 35% (rent, salaries, marketing, software)-₪35,000
  • Operating profit (25%)₪25,000
  • Finance expenses (2%)-₪2,000
  • Profit before tax (23%)₪23,000
  • Tax, by the legal form of the business
  • Net profit: what is left after tax

Steps

  1. Gross profit, 60% of revenue, says whether the prices cover the cost of what was sold.

  2. Operating profit says whether the overhead fits the business: ₪25,000 is left after rent, salaries and marketing.

  3. Finance expenses and tax come next, and only then net profit. No tax rate is shown, because it depends on the legal form of the business and the accountant calculates it.

  4. The same month on the bank statement: customers paid ₪60,000 of the ₪100,000 invoiced, and ₪75,000 went out to suppliers and expenses.-₪15,000

Profit on the P&L and cash in the bank are two different numbers. The ₪40,000 that customers still owe is the gap between them.

Illustration

The P&L, layer by layer

  1. Revenue100%₪100,000
  2. Cost of goods sold (COGS)40%-₪40,000
  3. Gross profit60%₪60,000
  4. Operating expenses35%-₪35,000
  5. Operating profit on the P&L25%₪25,000
  6. Loan interest2%-₪2,000
  7. Profit before tax23%₪23,000
  8. Tax

    Calculated by the accountant, by the legal form of the business. No rate is shown.

  9. Net profit

    Profit before tax, ₪23,000, minus the tax.

Where each ₪100 of revenue goes

  • Cost of sales₪40
  • Overhead₪35
  • Financing₪2
  • Left before tax₪23

A gross margin of 60% says the prices cover what was sold. Overhead takes 35% of revenue and financing 2%, which leaves 23%, ₪23,000, before tax. Move a slider and watch which layer a loss shows up in.

One month of a small business, top to bottom, each layer with its share of revenue. Gross profit tests the prices, operating profit the overhead, profit before tax the financing. Tax has no number: the accountant calculates it.

Profit on paper, cash in the bank

  1. Operating profit on the P&L₪25,000
  2. Invoices customers have not paid yet-₪40,000
  3. Change in the bank balance-₪15,000

Customers paid ₪60,000 of the ₪100,000 invoiced (60%). The P&L shows ₪25,000 of operating profit, and the bank shows -₪15,000, because ₪40,000 is still with the customers.

The same month twice: the operating profit the P&L shows, the invoices customers have not paid yet, and what that leaves in the bank.

Definition

A P&L, short for profit and loss statement and also written PnL, is the report that lists a business's revenue and expenses for a period, a month, a quarter or a year, and ends with its profit or loss. It is also called an income statement, and the international standard IAS 1 calls it the statement of profit or loss. The lines run top to bottom in a set order: revenue, cost of sales, gross profit, selling and marketing expenses, general and administrative expenses, operating profit, finance expenses, profit before tax, tax, and net profit. Each subtotal answers a different question: gross profit says whether the pricing works, operating profit whether the overhead fits, net profit what is left after financing and tax. The P&L is one of three statements that belong together: it covers a period, the balance sheet shows what the business owns and owes at one moment, and the cash flow statement shows the cash that actually came in and went out. A management P&L, built every month for decisions, is not the same as the annual statements prepared for the Tax Authority, the bank or investors.

Why it matters

It turns a feeling about a month, busy or quiet, into numbers you can set against last month and last year.

Directly related: Cash flow, Gross Profit, Net Profit.

Improvement tips

  • Build a simple management P&L every month in the same line order, so months compare and you spot any expense line that grows faster than revenue.
  • Keep the three subtotals apart. Gross profit, operating profit and net profit each point to a different problem: pricing, overhead or financing.
  • A management P&L on accrual shows the real month. For tax, many small service businesses report on a cash basis and businesses with stock report on accrual. Your accountant tells you which applies.
  • Ask your accountant early in the year how much of the profit to set aside for tax, and move that share to a separate account every month.

Common mistakes

  • Putting a large purchase that serves for years, such as equipment, into one month's expenses, so that month shows a loss and the months after it look better than they are.
  • Looking at the P&L once a year, so small expense lines grow for months before anyone notices.
  • Calling operating profit net profit. Finance expenses and tax still come off before the bottom line.

Related terms

FinanceBeginner

Cash flow

Cash flow is the money coming into and going out of a business's account in a period. A profitable business can still run short of cash when customers pay late.

FinanceBeginner

Gross Profit

Gross profit is revenue minus the cost of goods sold (COGS): what is left from sales after goods, materials and direct labour. Rent and salaries come from it.

FinanceBeginner

Net Profit

Net profit is what a business keeps from revenue after every expense, cost of sales, running costs, interest and tax. It is the bottom line, not cash.

FinanceBeginner

Gross margin

Gross margin is the share of revenue left after the cost of goods sold: (revenue - COGS) ÷ revenue × 100. At 60%, 60 agorot of each shekel remain.

FinanceBeginner

Overhead

Overhead is the indirect cost of running a business, like rent, bookkeeping, insurance and admin salaries, that cannot be traced to one product or customer.

FinanceBeginner

Revenue

Revenue is everything a business sold in a period, before any costs and without the VAT on the invoice. It is the P&L's top line, not profit and not cash.

From the blog

Financial KPIs: A Small Business Dashboard

A first owner dashboard for cash, profit, receivables, VAT reserves, runway, and the decisions those numbers should trigger.

First Financial Mistakes Israeli Owners Make

The early finance setup mistakes Israeli owners make with mixed money, VAT, owner draws, records, invoices, and tax reserves.

Quick check

Gross profit looks healthy, but operating profit is thin. Where do you look first?

Choose an answer

Frequently asked questions

Do I need to understand a P&L before I start a business?
Yes. A draft P&L for the first months shows whether your prices, costs and overhead can add up to a profit, and it is the core of any business plan a bank or investor will read.
When does a P&L first become relevant for a new business?
From the first transaction. Set up the line order early, and every month is comparable with the one before it from day one.
How do I build a draft P&L for a business that has not launched?
List the monthly sales you expect, then the cost of what you will sell, then rent, salaries, marketing and software, in that order. Each subtotal shows where the plan is weak: pricing if gross profit is thin, overhead if operating profit is.
What is the difference between a P&L, a balance sheet and a cash flow statement?
The P&L covers a period and shows profit or loss. The balance sheet is a snapshot of what the business owns and owes at one moment. The cash flow statement shows the cash that actually came in and went out. You need all three for the full picture.
Why does a P&L matter for a business that is already running?
It shows whether you are actually making money and which lines grow faster than revenue, so you know what to cut or reprice before the bank balance tells you.
What goes wrong when a business ignores its P&L?
It can run at a loss for months without noticing, because a busy month feels like a good one. By the time the bank balance shows it, the gap is harder to close.
How do I start using a P&L without stopping daily work?
Use bookkeeping software that produces a monthly profit and loss report, and spend fifteen minutes at month end comparing it with the month before. Look at the three subtotals first.
Which line of the P&L should I read first?
Gross profit. If it is thin, cutting overhead will not fix the business: the prices or the cost of what you sell have to change first. Then operating profit, then the bottom line.
What does P&L mean in plain words?
P&L stands for profit and loss. It is the list of what the business earned and spent in a period, and its last line says whether it made or lost money. PnL, P and L and income statement are other names for the same report.
Is a P&L complicated or risky to prepare?
No. A monthly management P&L is an ordered list of your sales and expenses, and bookkeeping software builds most of it for you. The real risk is a missing expense, which makes the month look better than it was.
Do I need an accountant to prepare a P&L?
You can build a monthly P&L yourself, and it is the version you run the business by. The annual report and the tax filing need an accountant: a self employed person attaches a profit and loss report to the annual tax return, and companies have further rules. A business consultant helps you read the numbers and act on them. Educational material, not tax or legal advice.
What does PnL mean in trading?
In trading and crypto, PnL is the profit or loss on a position, realised once you close it or unrealised while it is still open. It is the same idea, profit or loss, applied to one investment instead of a whole business.

Sources: IFRS Foundation, IAS 1 Presentation of Financial Statements, checked September 2026, Israel Accounting Standards Board, Hebrew translation of IAS 1 (the statement of profit or loss and other comprehensive income), checked September 2026

Last reviewed: 2026-09-23

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