Profit and Loss Statement (P&L / Income Statement)
Definition
A profit and loss statement (P&L), also called an income statement, summarizes a company's revenues, costs, and expenses over a specific period to show whether the business earned a profit or incurred a loss. It is one of the three core financial statements used to evaluate business performance.
Overview
The profit and loss statement (P&L) provides a structured view of financial performance over a period, typically monthly, quarterly, or annually. It starts with revenue at the top, subtracts cost of goods sold to arrive at gross profit, then deducts operating expenses to show operating income, and finally accounts for taxes and interest to reveal net income.
For startups, the P&L reveals the relationship between revenue growth and spending. A well-structured P&L breaks expenses into categories like engineering, sales & marketing, general & administrative (G&A), and cost of goods sold, making it easy to see where money is going and whether spending ratios are in line with benchmarks.
Founders should review their P&L monthly and compare actual results against their budget and forecast. Significant variances, particularly in categories like hosting costs, contractor spend, or marketing, should trigger deeper investigation. The P&L is also a primary document requested during fundraising due diligence.
Example
A seed-stage startup reports $40K revenue, $8K COGS, $32K gross profit, $55K operating expenses, resulting in a net loss of $23K for the month.
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