Plenty of owners run their Profit and Loss report once a year, when their accountant asks for it. They glance at the bottom line, feel a small jolt of relief or worry, and close it. That's a shame, because this one report can tell you which services are worth your time, where money is leaking, and whether a slow month is a blip or a trend. You don't need an accounting degree to read it… you just need to know what each part is telling you.
Here's how to run it in QuickBooks and what to look for.
What the Profit and Loss report shows
The Profit and Loss report, also called an income statement, shows your income and expenses over a period of time, and the difference between them: your net profit or loss.
It answers questions like:
- How much did we earn this month, quarter, or year?
- What did we spend, and on what?
- Are we making money?
It does not show how much cash you have in the bank. For that, you'll look at your balance sheet and bank accounts.
How to run it
In QuickBooks Online:
- Go to Reports.
- Find Profit and Loss (it's usually in the favorites or business overview section).
- Choose a date range, like this month, last quarter, or year to date.
- Pick Cash or Accrual basis.
- Click Run report.
Cash vs. accrual, simply put:
- Cash basis counts income when you receive payment and expenses when you pay them.
- Accrual basis counts income when you invoice and expenses when you're billed.
Many small businesses look at cash basis day to day, but accrual can give a clearer picture of when work actually happened. Ask your accountant which one you file taxes on.
How to read each section
Income
This is your revenue, grouped by income account. If you set up separate income accounts for different services or products, you'll see each one here.
Look for: Which revenue streams are growing? Is anything unexpectedly high, which could mean a transfer or loan was recorded as income by mistake?
Cost of Goods Sold (COGS)
If you sell products or have direct job costs, this section shows what it cost to produce or buy what you sold. Not every business uses it.
Gross Profit
Income minus COGS. It tells you how much is left over to cover everything else.
Look for: Is gross profit holding steady as a share of income? If your costs are rising faster than prices, you'll see it here first.
Expenses
Your operating costs: rent, software, marketing, insurance, payroll, and so on.
Look for: Large categories, categories that jumped compared to last period, and anything in uncategorized accounts.
Net Operating Income and Net Income
What's left after expenses. Some businesses also have "other income" and "other expenses," like interest, that appear below this line.
Make it more useful with comparisons
A single report is a snapshot. Comparisons tell the story.
- By month: Use the "Display columns by" option and choose Months. You'll see trends and seasonality.
- Previous period or previous year: Use the compare options to add columns for last month or the same period last year.
- % of income: Turn on the percentage option to see each expense as a share of revenue. This makes it easier to compare months with different sales levels.
An example
A small marketing agency runs its Profit and Loss for January through August by month. The owner notices:
- Retainer income is steady, but project income drops every summer
- Software subscriptions have crept up month over month
- Contractor costs spike in the same months as large projects, as expected
Those insights lead to three actions: building a summer promotion for project work, reviewing and canceling unused subscriptions, and pricing large projects to cover contractor costs with room to spare.
Common mistakes when reading the report
Assuming profit equals cash. A profitable month can still leave you short on cash if customers haven't paid yet or you paid down a loan.
Ignoring uncategorized amounts. If a big number sits in Uncategorized Expense, your report isn't telling the full story.
Reading it from unreconciled books. If your accounts aren't reconciled, the report may include duplicates or miss transactions. Reconcile first.
Looking at the bottom line only. The details in each section tell you what to change.
Mixing up loan payments. The principal portion of a loan payment generally isn't an expense on the Profit and Loss. If you see full loan payments recorded as expenses, ask your accountant how to correct them.
Build a monthly review habit
Once a month, after reconciling:
- Run Profit and Loss for last month, compared to the month before
- Run it year to date by month
- Write down two or three observations
- Pick one action
That 20-minute routine turns your bookkeeping into decision-making.
Learn the reports that matter
Our QuickBooks Mastery for Small Business course includes a full lesson on core reports, including Profit and Loss, Balance Sheet, and aging reports, plus the bookkeeping habits that make those reports accurate in the first place.