--- title: "How to read a profit and loss statement | MCC Solutions" description: "A plain-language walk through a small business profit and loss report: revenue, cost of goods, gross profit, expenses and net income, and what to look…" url: "https://mcc-solutionsnj.com/bookkeeping/guides/how-to-read-a-profit-and-loss-statement" --- Bookkeeping guide · Updated October 12, 2026 # How to read a profit and loss statement The profit and loss report, also called the income statement, answers one question: did the business make money in this period? Here is how to read it. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** A profit and loss statement answers whether the business made money in a period. Start with revenue, the amount earned in the period, and check that it matches what you invoiced or deposited, including refunds and discounts. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [Owner contribution or loan](/bookkeeping/guides/owner-equity-and-capital-contributions) · [Closing entries and retained earnings](/bookkeeping/guides/closing-entries-and-retained-earnings) · [Void vs delete a transaction](/bookkeeping/guides/voiding-vs-deleting-transactions) **Free tools:** [Net profit margin calculator](/bookkeeping/net-profit-margin-calculator) · [How many sales do I need to break even?](/bookkeeping/break-even-calculator) Prefer a file to work in? The [Month-End Close Workbook](/toolkits/month-end-close-workbook) runs the whole close in Excel and tells you when a reconciliation does not tie. [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## The top line Revenue or income is what the business earned in the period. Check that it matches what you invoiced or deposited, including any refunds and discounts. ## Cost of goods sold If you sell products, this is what the items cost you. Subtract it from revenue to get gross profit. Service businesses may have little or none. ## Operating expenses Rent, payroll, software, insurance, marketing and similar costs. Look for categories that are unusually large or unusually small compared with last month. ## Net income What is left after expenses. A profit on paper does not mean cash in the bank, because loan payments, owner draws and inventory purchases are not on this report. ## What to check each month Compare with the previous month and the same month last year. Look at expenses as a percentage of revenue. Ask about anything you do not recognize. Then read the balance sheet next to it. ## Common questions **Is a profit and loss the same as a tax return?** No. Tax rules can treat some items differently, and your return may differ from your books. **How often should I look at it?** Monthly. Waiting until tax time hides problems. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### QuickBooks Online Monthly bookkeeping, cleanup and reconciliation in QuickBooks Online for New Jersey small businesses. Your account stays in your name. QuickBooks →](/bookkeeping/software/quickbooks-online) More guides - [How much does small business bookkeeping cost?](/bookkeeping/guides/how-much-does-bookkeeping-cost) - [Double-Entry Bookkeeping Explained Simply](/bookkeeping/guides/double-entry-bookkeeping-explained) - [Debits and Credits Cheat Sheet for Owners](/bookkeeping/guides/debits-and-credits-cheat-sheet) - [How to Read a Small Business Balance Sheet](/bookkeeping/guides/how-to-read-a-balance-sheet) Free tool - [Bookkeeping health check](/bookkeeping/health-check) [All guides](/bookkeeping/guides) Reach small business owners, freelancers and bookkeepers who read this guide: [advertise here](/advertise#bookkeeping). [![Cover of Bookkeeping Fundamentals (ebook) by Matthew Colt](/img/toolkits/bookkeeping-fundamentals-ebook/cover.webp)](/toolkits/bookkeeping-fundamentals-ebook) From the bookshelf ### Bookkeeping Fundamentals A college-level bookkeeping course, without the tuition. By Matthew Colt, $9.99 as an ebook (EPUB and PDF). [See the book](/toolkits/bookkeeping-fundamentals-ebook) [Read the first pages free](/toolkits/bookkeeping-fundamentals-ebook#free-starter) Excel workbook ### Financial Ratio Analysis Workbook Enter three years of statements and see margins, liquidity, leverage and efficiency ratios side by side, with what each one means in plain English. [See what is inside ($29)](/toolkits/financial-ratio-analysis-workbook) Also in the [Business Finance Ratios Bundle](/toolkits/business-finance-ratios-bundle): 3 products for $89 instead of $117 separately. Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)