The Profit and Loss statement (P&L), also called the Income Statement, measures your company's financial performance over a specific period. It shows revenue earned, expenses incurred, and resulting p...
Last updated Feb 18, 2026 · 4 min read
The P&L organizes accounts into sections:
Revenue (sales):
Total revenue shows your top-line financial performance.
Cost of goods sold (COGS): Direct costs to produce goods or deliver services:
Gross profit = Revenue - COGS. Shows profitability before operating expenses.
Operating expenses: Costs to run the business:
Operating income = Gross Profit - Operating Expenses. Shows profit from core business operations.
Other income/expenses: Non-operating items:
Profit before tax = Operating Income + Other Items.
Tax expense: Income taxes owed.
Net profit = Profit Before Tax - Tax Expense. Bottom-line profitability.
Generate your P&L statement:
Light displays the P&L formatted by revenue, expense, and profit categories.
Revenue accounts: Represent sales of products and services. Show before returns and discounts.
Discount and returns accounts: Reduce gross revenue to net revenue (revenue after typical reductions).
Cost of goods sold: Direct costs that vary with production or service delivery. Excludes overhead and administrative costs.
Gross margin = Gross Profit ÷ Revenue. Percentage of revenue remaining after direct costs. High margins indicate pricing power or efficient operations.
Operating expenses: Fixed and variable costs to operate the business. Include all support functions.
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization.
A metric showing operating profitability before financing and tax impacts (calculated as Operating Income + Depreciation + Amortization).
Interest expense: Cost of borrowed money. Shows on P&L when debt is outstanding.
Tax expense: Income taxes owed based on taxable income. Includes current and deferred tax.
Good to know: Some companies show tax as a percentage (effective tax rate) as well as absolute amount for stakeholder understanding.
Key performance indicators derived from the P&L:
Gross margin % = Gross Profit ÷ Revenue
Shows profitability on each sale before operating expenses.
Operating margin % = Operating Income ÷ Revenue
Shows profitability from core business operations.
Net margin % = Net Income ÷ Revenue
Shows bottom-line profitability. Industry-specific benchmarks exist.
Operating leverage: How much expenses increase relative to revenue growth.
Light can calculate these metrics automatically in custom P&L reports.
Revenue appears on the P&L in the period it's recognized, which may differ from cash receipt:
The P&L reflects economic reality (when you earned the revenue) rather than cash timing.
Expenses appear on the P&L in the period incurred, which may differ from cash payment:
This matching principle ensures P&L reflects the cost of earning revenue in each period.
Compare P&L to prior periods:
This identifies profit drivers and problem areas.
For organizations with multiple entities:
Light automatically eliminates inter-company transactions in consolidated reporting.
Report P&L in different currencies:
For multinational companies:
Analyze P&L by business segment:
This supports strategic planning and resource allocation.
Analyze expenses by cost center:
Light tracks cost center on every transaction, enabling detailed analysis.
Compare actual P&L to budget:
Investigate variances >10% to understand performance drivers.
View cumulative P&L from year start:
Compare YTD performance to budget or prior year for mid-year assessment.
Project future P&L based on assumptions:
Use for planning and to communicate with lenders or investors.
Comprehensive P&L reporting includes footnotes:
Light maintains a footnote library. Attach relevant footnotes to your P&L.
Tip: Separate discontinued operations and one-time items from continuing operations for clearer performance analysis.
Export P&L for external distribution or analysis:
The P&L maintains your company branding in PDF format.
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