Profit and loss (P&L)

What Is a Profit and Loss Statement?

A Profit and Loss (P&L) statement—also known as an income statement—is a financial report that summarises a business’s revenues, costs, and expenses over a specific period of time, usually monthly, quarterly, or annually. It reveals whether a company made a profit or incurred a loss and is one of the key financial statements used in business accounting.

For Australian businesses, the P&L is essential for tracking performance, meeting compliance obligations (such as BAS and tax reporting), and making informed operational decisions.

ATO – Profit and Loss Statement Overview

Key Components of a P&L Statement

A standard P&L typically includes:

• Revenue (or Sales): Total income generated from selling goods or services.
• Cost of Goods Sold (COGS): Direct costs associated with producing goods or delivering services.
• Gross Profit: Revenue minus COGS.
• Operating Expenses: Includes payroll, rent, utilities, marketing, and administrative costs.
• Operating Profit (EBIT): Gross profit minus operating expenses.
• Other Income and Expenses: Interest income, interest expense, asset sales, etc.
• Net Profit (or Loss): The final figure after all income and expenses are tallied.

Each of these elements helps business owners understand where money is coming from, where it’s going, and how operations can be adjusted to increase profitability.

Why the P&L Statement Matters

For business owners and HR/payroll managers, the P&L statement is more than just numbers—it tells the story of business health. Here’s why it matters:

• Performance Tracking: Easily see whether your business is growing, stable, or declining.
• Informed Decision-Making: Helps guide decisions on hiring, pricing, budgeting, and investment.
• Tax Reporting: Required to prepare accurate Business Activity Statements (BAS) and income tax returns.
• Securing Funding: Banks and investors often require a P&L as part of their due diligence.
• Compliance: Ensures your business is accurately reporting income and expenses to the ATO.

P&L and Payroll: The Direct Link

Payroll is often one of the largest expenses in a business and is a major component of the operating expenses shown on a P&L. Efficient payroll management directly influences your bottom line. For instance:

• Accurate wage reporting ensures you know your true labour costs.
• Minimising time theft (e.g. through biometric attendance like facial recognition clocking) improves cost control.
• Automated award interpretation prevents overpayment errors and ensures compliance with Modern Awards.

How to Read a P&L Statement

Understanding your P&L involves more than just skimming the net profit number. Here’s how to break it down:

1. Look at Revenue Trends: Are your earnings increasing over time?
2. Check Gross Margin: What percentage of revenue is left after covering production costs?
3. Assess Operating Expenses: Are payroll, rent, and other fixed costs in line with industry benchmarks?
4. Analyse Net Profit: Is it enough to cover future investments, growth, or debt repayments?

In short, your P&L helps answer: Are we making money, and if not, why?

Common P&L Mistakes to Avoid

• Failing to Record All Expenses: Missing entries skew profitability.
• Lumping All Revenue Together: Break down income by product/service to reveal true performance.
• Not Updating Regularly: Outdated reports are less useful for timely decision-making.
• Ignoring Non-Cash Expenses: Items like depreciation still impact profit, even if no cash leaves your account.

How Microkeeper Can Help

Microkeeper simplifies your financial tracking through:

• Award-compliant payroll software that ensures accurate wage and super reporting.
• Timesheet automation, reducing manual error in labour costing.
• Payroll reporting tools that help consolidate wage data for seamless export into accounting platforms.
• Job costing and multiple pay rate tracking for visibility on where labour dollars are spent.

FAQs About Profit and Loss Statements

Do sole traders need a P&L?

‍Yes. Even small businesses or sole traders should track profit and loss to monitor performance and prepare for tax season.

How often should a business generate a P&L?

‍At minimum quarterly, but monthly P&Ls offer better visibility for decision-making.

Is P&L the same as a balance sheet?

‍No. A P&L shows income and expenses over time; a balance sheet shows assets, liabilities, and equity at a single point in time.

Can a P&L help with budgeting?

‍Absolutely. Reviewing past P&Ls is one of the best ways to forecast revenue and set realistic budget targets.

Final Thoughts

The Profit and Loss (P&L) statement is one of the most important financial tools for any business. It provides critical insights into profitability, cost control, and financial strategy. For Australian employers, understanding and managing payroll expenses within the P&L is key to running a sustainable business. With the help of platforms like Microkeeper, you can streamline your payroll process and gain clearer insight into how labour costs affect your bottom line.

_{Disclaimer: This glossary entry is for informational purposes only and should not be considered financial advice. For tax or accounting matters, please consult a registered BAS or tax agent.}