What is a profit and loss statement?
A profit and loss (P&L) statement, also called an income statement, shows your business performance for a period. It summarises revenue, cost of goods sold (or cost of sales), operating expenses and profit. In Australia, correctly coded files exclude GST from P&L figures because GST is handled via BAS.
Use the P&L to answer core questions: Are we priced correctly? Are we controlling costs? Which products or services drive profit? Do trends match our plan? If the raw data needs work, a bookkeeping service can fix coding and reconciliations before you rely on the results.
Step‑by‑step: how to read profit and loss
- Set the context
- Period: monthly, quarterly or year‑to‑date. Match it to BAS or board reporting.
- Accounting basis: cash or accrual. Use the same method as your BAS.
- Data quality: bank reconciled, payroll finalised, large journals reviewed. - Revenue (top line)
- Review by stream or product. Look for volume vs price changes.
- Spot one‑offs and reclassify if they distort performance. - Cost of goods sold (COGS) / cost of sales
- Ensure direct costs (materials, freight‑in, merchant fees per sale, casual labour directly tied to jobs) are here, not in overheads.
- Gross profit = Revenue − COGS. Gross margin % = Gross profit ÷ Revenue. - Operating expenses (overheads)
- Group by category: wages, rent, marketing, software, utilities, insurance.
- Scan for duplicates, annual prepayments and miscodings (e.g., director drawings as wages). - Other income and expenses
- Separate interest, grants, asset sales and one‑off costs so operating profit is clear. - Bottom line
- Operating profit (EBIT) then net profit before tax. Compare to last period and budget. - Compare and conclude
- Horizontal analysis: trend over time. Vertical analysis: each expense as % of revenue.
- Document 2–3 actions (pricing, cost control, marketing ROI, staffing mix).
If your software makes this hard, see best accounting software for small business or talk to a small business accountant about reporting packs.
Australian context to keep in view
- GST and BAS: P&L figures should be GST‑exclusive when coded correctly. Review GST codes and your BAS preparation process if amounts look off.
- Cash vs accrual: Use the same basis across your P&L and BAS. Switching basis changes timing and margins.
- Payroll and super: Wages, superannuation, leave and on‑costs belong in expenses; drawings/dividends do not. Single Touch Payroll must reconcile.
- Tax add‑backs: Some expenses are non‑deductible for tax (e.g., private use). Your tax accountant will adjust at year‑end.
- Financing and grants: Separate interest, government grants and asset disposals from operating results for clearer decisions.
What to compare before you commit to help
Scope
Confirm the work covers P&L cleanup (reconciliations, recoding, journals), reporting (monthly packs, KPI dashboards) and advice (pricing, budgeting, cash flow).
Software fit
Choose providers fluent in your stack (Xero, MYOB, QuickBooks, POS, job systems) and able to explain workflows, not just name tools.
Turnaround and communication
Ask when you’ll receive monthly P&L reports, how queries are handled at BAS time and who presents insights.
Commercial fit
Compare fixed fee vs hourly, inclusions (BAS, payroll, meetings), and whether you need bookkeeping only or broader accounting services.
Key formulas and quick checks
- Gross profit = Revenue − COGS
- Gross margin % = Gross profit ÷ Revenue
- Net profit before tax = Operating profit ± other income/expenses
- Expense ratio % = Expense category ÷ Revenue (track rent, wages, marketing)
- Red flags: negative gross margin, big “uncategorised”, GST sitting in expenses, payroll not reconciling to STP, sudden margin swings without volume or price changes.
If margins are unclear, consider product/service‑level reporting and job costing with the help of a BAS agent or new business accountant for setup.
Best next steps
Decide what you want from your P&L: cleaner data, trend analysis, pricing support, a budget vs actual pack, or ongoing monthly management reporting.
Then choose the right pathway: Bookkeeping services for coding and reconciliations, a small business accountant for interpretation and planning, or payroll services if wage costs and compliance are the pressure.
Prefer to move quickly? Use the form below to outline your situation and we’ll connect you with the right support.
Frequently asked questions
How to read profit and loss in Australia?
Confirm the reporting period and whether the file is on cash or accrual. Read top to bottom (revenue, COGS, gross profit, operating expenses, other items, net profit). Ensure GST is excluded from P&L amounts, then compare margins to prior periods and your budget. Fix data issues before making decisions.
What should I check before trusting my P&L?
Bank accounts reconciled, payroll finalised, GST/BAS settings correct, no large uncategorised expenses, prepayments and accruals updated, and director drawings/dividends not expensed as wages. If you are unsure, a bookkeeper can help.
Cash vs accrual: which should I use?
Use the basis that matches how you manage the business and lodge BAS. Accrual shows performance when revenue is earned and costs incurred; cash shows when money moves. Your tax accountant can advise on implications.
Where can I get help with my P&L?
For coding and reconciliations, see bookkeeping services. For interpretation, planning and tax, see small business accountant and tax accountant. Or request help now using the form below.