Accounting explained
Profit and Loss Statement: Meaning, Format and Example
The profit and loss statement (P&L, or income statement) shows what a business earned and spent over a period, and what was left. For a shop it answers the two questions that matter most: is the margin on goods enough, and is anything left after rent and salaries?
What it shows
A P&L covers a period, usually a month, a quarter or the financial year from 1 April to 31 March. It starts with sales, takes away the cost of the goods sold to get gross profit, then takes away running expenses to get net profit. Traditional Indian books split this into a Trading Account (down to gross profit) and a Profit and Loss Account (down to net profit); the result is the same.
It is prepared on the accrual basis: a sale counts when it is made, not when the customer pays, and an expense counts when it is incurred, not when it is paid.
Worked example: Sri Lakshmi Stores, year ended 31 March 2026
| ₹ | ₹ | |
|---|---|---|
| Sales (before GST) | 48,00,000 | |
| Opening stock | 2,70,000 | |
| Add: purchases | 38,20,000 | |
| Less: closing stock | (3,30,000) | |
| Cost of goods sold | (37,60,000) | |
| Gross profit (21.67% of sales) | 10,40,000 | |
| Rent | 2,40,000 | |
| Salary | 2,16,000 | |
| Electricity | 48,000 | |
| Phone and internet | 12,000 | |
| Packing and sundry expenses | 24,000 | |
| Depreciation | 30,000 | |
| Total expenses | (5,70,000) | |
| Net profit (9.79% of sales) | 4,70,000 |
Reading the example
Out of every ₹100 of sales, ₹78.33 went on the goods themselves, ₹11.88 on running the shop, and ₹9.79 was profit. The biggest lever is the gross margin: one percentage point more on ₹48 lakh of sales is ₹48,000 more profit, more than the year's electricity bill.
The ₹2,40,000 Ramesh took out as drawings is not in the P&L. Drawings are the owner taking profit out, not a cost of running the shop; they reduce capital in the balance sheet.
What does not belong in a P&L
- GST collected and paid, which belongs to the government and sits in GST accounts
- The cost of equipment, which is spread over its life as depreciation
- Loan principal repaid; only the interest is an expense
- Owner's drawings and personal expenses
- Money brought in by the owner as capital
Common mistakes
- Using purchases instead of cost of goods sold, which ignores the change in stock
- Recording sales including GST, which overstates turnover
- Booking a whole year's rent advance in one month
- Not counting closing stock, so profit is understated
- Mixing the owner's household spending into shop expenses
Monthly P&L for a shop
A monthly P&L needs a stock figure at each month end. Few shops count every month, so many use the stock value from their billing system for monthly figures and a physical count at year end. The monthly figure is good for spotting trends: if gross margin is 21% in most months and 17% in one, look for a pricing mistake, a supplier rate change, theft or wastage that month.
Compare each month with the same month last year rather than with the month before: a kirana's sales in October, with festivals, will not look like June's.
Key terms on this page
- Trading account: the part of the P&L down to gross profit
- Accrual basis: income and expenses recorded when earned or incurred, not when paid
About the worked example
The examples on our accounting pages follow one shop through one year: Sri Lakshmi Stores, a kirana in Mysuru owned by Ramesh, for the financial year 2025-26. It sold ₹48 lakh of goods (before GST), made a gross profit of ₹10.4 lakh and a net profit of ₹4.7 lakh, and ended the year with a balance sheet total of ₹7.95 lakh. The figures are illustrative but they add up across every page, so you can follow one transaction from the journal to the balance sheet.
How TripleBill handles it
TripleBill's profit and loss is read straight from the ledger, so it matches your invoices, bills and expenses for any period (Starter and Pro). Item and category P&L reports show margin by product using each item's current purchase price as its cost, and say so on the report.
General information on bookkeeping, not accounting or tax advice. For your final accounts and filings, consult a chartered accountant.
Last reviewed
Last reviewed: November 2026.
- Reference: Schedule III to the Companies Act, 2013 (statement of profit and loss format, for companies)
- Reference: ICAI Accounting Standard (AS) 2 for the valuation of closing stock
Frequently asked questions
What is a profit and loss statement?
A statement of income and expenses for a period, showing gross profit and net profit or loss.
What is the difference between a P&L and a balance sheet?
A P&L covers a period and shows profit; a balance sheet is a snapshot on one date and shows what the business owns and owes.
Is GST part of sales in the P&L?
No. Sales are shown before GST, because the GST collected is owed to the government.
Why is depreciation in the P&L when no cash was paid?
Because the shop used up part of its equipment's value during the year. Depreciation spreads the cost over the years that benefit from it.
Are drawings an expense?
No. Drawings are the owner withdrawing money and are deducted from capital in the balance sheet.
How often should a shop look at its P&L?
Monthly. A year-end P&L is too late to fix a margin problem.
Can I prepare a P&L from my bank statement?
Not accurately. A bank statement shows cash, not credit sales, unpaid bills, stock or depreciation. It is a cash flow view, not profit.
Related
Your first invoice is two minutes away.
7-day free trial with everything unlocked. No card needed.