Financial Literacy: Profit and Loss Statements

You have the expertise to build and run a successful business, but that doesn’t mean you have to become an accountant in the process. Many business owners don’t have time to maximize their financial statements and the stories they tell fully. Let’s review financial statements over the next couple of months and help get you up to speed!

Profit and Loss Statements

The profit and loss statement, or P&L, is one of the cornerstones of financial documents. On a P&L you can find information on your cash flow, total income, total expenses, and have all the information you need to gauge your company’s financial wellbeing. P&L statements break money down into 4 important categories: income, cost of goods sold, overhead expenses, and other expenses. Understanding these reports empowers business owners by giving them the information needed to grow their business.


As the name of this category implies, it tracks all money coming into the company. Whether it is the sale of products/goods, or payment for a service provided, if it involves money coming into your company it will qualify as income.

It is very important to review this section to make sure no income is duplicated, or that no expenses show up as income. Making sure all income is accounted for and none is duplicated will insure you don’t overpay in taxes or miss out on a debt!

Cost of Goods Sold

Again, the name of the category tells you most of what you need to know. Financial experts are much better with money than they are with creative naming.

This category will track the total cost to make or purchase a product, or to provide a service. This includes labor, materials, equipment rentals, etc. Accurately tracking all cost associated with providing goods and services is vital to making sure you stay profitable.

Overhead Expenses

Overhead expenses are those that can’t be tied directly to the process of making a product or providing a service. That doesn’t make these expenses any less important to track. Accounting for these when pricing your goods and services keeps you from running your business into the ground with day-to-day expenses.

Overhead expenses can be anything from maintenance, office costs, vehicle repair/upkeep, meals, or even an accountant (which is more of an investment than an expense).

Other Expenses

This category is just as random as it seems. Here is where you will track sporadic expenses that don’t fit into any other category. If they become recurring, they can be treated as an overhead expense, but if they are unpredictable by nature then they will fall into the category of other expenses.

To get a better idea of what all of this looks like visually be sure to check out our accompanying video where Phyllis walks you through a mock P&L report. A picture is worth a thousand words, and by the end of the video you might not be an accountant, but you will be able to navigate a P&L report and derive meaningful information from it!

If you have any questions, don’t hesitate to reach out to your friends at Deitz Consulting and let us steer you in the right direction!