Income minus expenses over a period — did the business make money?
The profit and loss statement (income statement) shows revenue minus expenses over a period — a month, a quarter, a year — ending in net profit or loss. It answers the owner's most-asked question: did we make money?
Reading it well means comparing: this month against last month, against the same month last year, against budget. One month's P&L is a data point; a trend is information. Note what it doesn't show — loan principal payments, owner draws, and equipment purchases don't appear as expenses, which is a big part of why profit and cash can move in opposite directions.
Q2 P&L: $60,000 revenue, $22,000 cost of goods sold — $38,000 gross profit — then $25,000 of operating expenses, leaving $13,000 net profit for the quarter.
Gross Profit · Net Profit · Cash Flow Statement — or browse the full plain-English glossary.
Reading a definition is the easy part — the Daily Challenge (ten questions a day, free, no signup) is how terms like this become reflexes. Going for certification? Start with the free ProAdvisor readiness check.