Profit and loss statement (P&L)
Learn what a profit and loss statement shows, how to read and prepare one, and the rules for Irish businesses.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A profit and loss (P&L) statement, also called an income statement, shows whether your business made a profit or a loss over a set period
- Gross profit is revenue minus cost of goods sold, while net profit is what’s left after all expenses, including operating costs, interest and tax
- Reviewing your P&L every month helps you catch rising costs early and set prices with confidence
- Every Irish company must prepare a profit and loss account, but small companies can omit it from filings with the Companies Registration Office (CRO)
What is a profit and loss statement?
A profit and loss statement is a financial report showing what your business earned and spent over a period, and whether it made a profit. You’ll also hear it called a P&L, an income statement or, in Irish company law, a profit and loss account.
You can run one for any period you like, such as a single month or a quarter. Companies also produce one for each full financial year as part of their annual accounts.
Say you run a café in Galway. Your March P&L adds up the takings, subtracts spending on beans, milk, rent and wages, and shows what the month left you with.
Sales can rise or dip sharply month to month, and the P&L is usually where you’ll see it first. Checking it regularly lets you respond to a slow spell or a busy season while there’s still time to adjust.
Why a profit and loss statement matters
A P&L answers the question most owners ask first: is the business making money? It also shows where that money goes, which is what you need to make better decisions.
Here’s what a regular profit and loss statement helps you do.
- Check whether each product or service is profitable
- Spot costs that are creeping up before they eat into your margin
- Show lenders and investors how the business performs when you apply for finance
- Prepare your tax return and statutory accounts with accurate figures
To use the report for any of these, you need to know what each line on it means.
What does a profit and loss statement include?
Every P&L starts with your turnover, also called revenue or sales, and works down to your net profit. Here are the main lines in the order they usually appear.
- Turnover is the total you earned from selling goods or services before any costs come off
- Cost of goods sold (COGS) is the direct cost of what you sold, such as stock, raw materials or production labour
- Gross profit is your revenue minus COGS, showing what you keep after paying for what you sold
- Operating expenses are the everyday costs of running the business, such as rent, wages, insurance and marketing
- Operating profit, sometimes called earnings before interest and tax (EBIT), is gross profit minus operating expenses
- Profit before tax is operating profit minus interest on loans and overdrafts
- Net profit, or net loss, is what’s left after all expenses, including operating costs, interest and tax
Operating expenses also include depreciation, which spreads the cost of an asset such as a coffee machine or van over the years you use it. Amortisation does the same for intangible assets, such as software licences.
Adding depreciation and amortisation back to operating profit gives you EBITDA (earnings before interest, tax, depreciation and amortisation). Lenders often use it to compare how businesses perform before financing and accounting choices come into play.
How to read a profit and loss statement
Read a P&L from the top down, checking how much of each euro of turnover survives each layer of costs. Two ratios tell you most of what you need to know.
Your gross profit margin is gross profit divided by revenue, multiplied by 100. If your gross profit is €60,000 and revenue is €150,000, your gross profit margin is 40%.
A falling gross margin can point to rising supplier prices or discounts that cut too deep.
Your net profit margin is net profit divided by revenue, multiplied by 100. It shows how much of every euro earned stays in the business once all expenses are paid.
Tracking both profit margins month by month shows whether extra sales are adding to your profit. If turnover grows while net margin shrinks, your costs are growing faster than your sales.
The figures mean more side by side, so compare each month with the month before and with the same month last year. The year-on-year view stops seasonal swings, like a quiet January, from misleading you.
Watch for one-off items as well, such as an insurance payout or a large repair. Set them aside when you judge the results, so you can see what the business earns in a typical period.
How to prepare a profit and loss statement
You can build a P&L from a profit and loss template or have accounting software produce it from your records. Either way, the logic follows these steps.
- Choose your reporting period. Pick a month or quarter to manage the business, or your financial year for annual accounts, and keep it consistent so you can compare results.
- Add up your turnover. Total every sale made in the period, plus any other income the business earned.
- Calculate your cost of goods sold. Add up the direct costs of the goods or services you sold in the period, such as stock and materials.
- Work out your gross profit. Subtract COGS from your turnover.
- List your operating expenses. Include rent, wages, utilities, insurance, marketing and depreciation for the same period.
- Calculate your net profit or net loss. Subtract operating expenses, interest and tax from gross profit; a positive figure is a profit and a negative one is a loss.
Cloud-based small business accounting software can produce this report from the transactions you’ve already recorded. That saves you building it from scratch each month.
Profit and loss statement example
Here’s how those steps look for Harbour Coffee, a fictional coffee shop in Cork, for the quarter ending 30 June 2026. The shop uses the multi-step layout, so you can see each layer of profit.
- €150,000 in turnover from coffee and food sales
- €54,000 in cost of goods sold for beans, milk, pastries and packaging
- €96,000 in gross profit (€150,000 minus €54,000)
- €72,000 in operating expenses for rent, staff wages, utilities, marketing and insurance
- €24,000 in operating profit (€96,000 minus €72,000)
- €5,400 in interest and tax
- €18,600 in net profit (€24,000 minus €5,400)
Harbour Coffee has a gross profit margin of 64% and a net profit margin of 12.4%. The owner can see that ingredients are well priced for what the shop charges.
Rent and wages take up most of the gross profit, so that’s where to look first if costs rise.
Single-step vs multi-step profit and loss statements
There are two common layouts for a P&L, and the right one depends on how much detail you need. Both arrive at the same net profit.
A single-step P&L adds up all revenue, subtracts all expenses in one calculation and shows net profit. It suits sole traders and very small businesses with simple finances.
A multi-step P&L groups costs first. It subtracts COGS to show gross profit, then operating expenses to show operating profit, then interest and tax to reach net profit.
The multi-step layout is the one you’ll usually see in Irish limited company accounts. Accounting software typically produces it by default, because it shows exactly where your margin goes.
Profit and loss statement vs balance sheet
A P&L shows performance over a period, while a balance sheet shows your financial position on a single date. If the P&L is a video of your quarter, the balance sheet is a photo taken on the last day.
The balance sheet lists what the business owns (assets), what it owes (liabilities) and the owners’ stake in it (equity).
The two financial statements connect through retained earnings. Net profit you keep in the business, instead of paying it out as dividends, adds to retained earnings in the equity section. A net loss reduces them.
That’s why a profitable year strengthens your balance sheet when you leave the profit in the company.
Profit and loss statement vs cash flow statement
A P&L shows whether you made a profit, while a cash flow statement shows the cash that actually came in and went out. The two can tell very different stories about the same month.
Most P&Ls use the accrual basis: sales count when you make them and costs count when you incur them, whatever the payment date. Customers can take weeks to pay an invoice, so the turnover on your P&L and the cash in your bank can differ.
Here’s where profit and cash often part ways.
- Sales you’ve invoiced count as turnover before the customer pays
- Loan repayments reduce your cash, while only the interest appears on the P&L
- Equipment purchases leave your account in one go, while depreciation spreads the cost over several years
- Stock you’ve bought but haven’t sold ties up cash before it counts as COGS
A profitable business can still run short of cash for these reasons. Reviewing both reports together shows you when to chase payments or delay a purchase.
Profit and loss accounts in Ireland
Irish reporting rules depend on how your business is set up. Companies follow company law and file with the CRO, while sole traders and partners report their profit to Revenue (the Revenue Commissioners).
What Irish companies must prepare and file
Under the Companies Act 2014, every Irish company must prepare a profit and loss account as part of its statutory financial statements. Most small and medium companies prepare them under Financial Reporting Standard 102 (FRS 102), which applies in the UK and Republic of Ireland. Companies using International Financial Reporting Standards (IFRS) follow those instead.
Your company counts as small if it meets two of three limits. These are turnover up to €15 million, a balance sheet total up to €7.5 million and up to 50 employees.
Small companies can claim the size exemption for abridged financial statements when they file with the CRO. Abridged statements include the balance sheet and notes but leave out the profit and loss account. You still prepare full financial statements for your company’s members.
How the P&L feeds into your company’s tax return
The profit on your P&L is the starting point for your company’s tax bill. Corporation Tax is worked out from that figure, adjusted for items the tax rules treat differently, such as depreciation, which is replaced by capital allowances.
You report it on Form CT1, which you file with Revenue. Revenue charges 12.5% on trading income and 25% on non-trading income, such as rental and investment income.
How sole traders and partners report profit
Sole traders and partners don’t file accounts with the CRO. You report your trading profit on your Form 11 income tax return, so an accurate P&L gives you the figures you need.
The pay-and-file deadline for the 2025 Form 11 income tax return is 31 October 2026. It moves to 18 November 2026 if you pay and file on the Revenue Online Service (ROS).
Track your profit and loss with Xero
A P&L is most useful when it’s current, and that’s easier when the report builds itself from your everyday bookkeeping. In Xero, your profit and loss report updates as bank feeds bring in transactions and you reconcile them.
You can compare this month with last month and share live figures with your accountant or bookkeeper. Your P&L sits alongside other financial reports, such as your balance sheet, so the full picture is always a click away.
With up-to-date numbers all year, your Form CT1 or Form 11 takes less work and your decisions rest on real figures. See how it works for your business and get started when you get one month free.
FAQs on profit and loss statements
Here are quick answers to other common questions about profit and loss statements.
How often should you review a profit and loss statement?
Monthly works for most small businesses, ideally once you’ve reconciled your bank accounts so the month’s figures are complete. Move to weekly checks during your busiest season or when cash is tight.
How can I get a profit and loss statement?
Accounting software produces one once your transactions are recorded; you pick the date range and can compare it with an earlier period. Your accountant or bookkeeper can also prepare one, often as part of monthly management accounts.
Do sole traders need a profit and loss statement?
It’s worth keeping one: it makes your Form 11 easier to complete and gives a bank the figures it asks for before a loan. Money you take out for yourself counts as drawings, which don’t reduce your profit.
Does VAT appear on a profit and loss statement?
If you’re registered for value-added tax (VAT), your P&L shows sales and costs excluding VAT, since the VAT you collect is owed to Revenue. If you’re not registered, the VAT on your purchases is simply part of the cost.
What does a net loss mean?
A net loss means your total expenses were higher than your turnover for that period. One loss-making month is common during setup or a quiet season, while losses over several periods are a signal to review your pricing and costs.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.