FAQ: Profit & Loss Report
Quick answers to common questions about Profit & Loss reports.
Q: Why does my P&L show a loss even though I have money in the bank?
A: P&L follows accrual accounting: it includes sales as soon as you invoice them, even if the customer hasn't paid yet. Similarly, it includes expenses when you incur them, not when you pay. So a profitable month in accrual accounting might show a loss in cash. Check your bank account and aging reports for the true cash picture. Your accountant can help you understand the difference.
Q: What is COGS, and how does it differ from operating expenses?
A: COGS (Cost of Goods Sold) is the direct cost to produce or buy items you sell: raw materials, labor, packaging, shipping. Operating Expenses are overhead: salaries, rent, utilities, marketing, insurance. COGS is "per item" (higher sales = higher COGS); operating expenses are mostly fixed (they don't change much with sales volume).
Q: Can I see profit by product or department?
A: Yes. If your company tracks by department or cost center, run the P&L with that filter. You can also ask your accountant for a segmented P&L report that breaks profit down by product line or location. This shows you which products or departments are winning and which need attention.
Q: How do I explain a sudden drop in profit?
A: Check three things: (1) Did revenue drop? (2) Did COGS increase? (3) Did operating expenses increase? Use the Comparison Period filter to compare this month to last month or this year to last year. Then drill down into each section to find which invoices or expenses changed.
Q: Is it normal for expenses to be higher in one season?
A: Yes. Most businesses have seasonal patterns: retail is busy in Q4, agriculture in harvest, etc. Monthly P&Ls will vary. Compare to the same month last year to spot true trends. Also, your accountant can help identify seasonal items so you don't misread a normal seasonal dip as a problem.
Q: How do I know if my profit margin is good?
A: It depends on your industry. Retail and e-commerce might have 5–15% net margins; professional services or software might have 20–50%. Ask your accountant what is typical for your business. Also, compare your margin to the prior year or prior quarter to spot trends in your own business.
Q: Can I export a P&L with previous years side by side?
A: Yes. Use the "Comparison Period" filter when running the report. You can set it to show the prior year side by side. Then export to Excel to see both years and calculate year-over-year growth. This is helpful for board reports and year-end reviews.
Q: What happens to expenses I haven't paid yet?
A: They still appear on the P&L under accrual accounting. The expense is recognized when you incur it (e.g., when you receive a bill), not when you pay it. This gives a more accurate picture of profitability. Your accountant can show you which expenses are accrued (owed but not yet paid).
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