A profit and loss statement reports your income, costs and profit over a period. This guide explains gross vs net profit and how to read the report.
Published July 2026 · Updated July 2026
The profit and loss statement (also called the income statement) reports what you earned and spent over a period, ending in your profit or loss. Where the balance sheet is a snapshot, the P&L is the story of a period.
Start with turnover (total sales), then subtract the cost of sales, the direct cost of the goods or services you sold. What remains is gross profit, and gross margin expresses it as a percentage of sales.
From gross profit, subtract your overheads, rent, salaries, software, marketing, to reach net profit, the true bottom line. Reading the P&L top to bottom shows exactly where money is won and lost.
Gross profit is sales minus direct costs; net profit is what's left after all other costs too. Our calculators work out both margins for you.
No. Profit can be high while cash is tight, for example if customers have not paid yet. That is why you watch both.
Monthly is ideal, so you spot a slipping margin or a creeping cost early rather than at year end.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.