How to read your profit and loss

Profit and loss is the one report that answers "did we make money". It reads top to bottom: what you sold, what that stock cost you, what running the shop cost you, and what is left.

1. 1

   Open Reports → Finances → Profit & Loss

   Pick a period. Everything on the statement is for the window you choose, so compare like with like — a month against a month, not a month against a good week.

2. 2

   Start at Net Sales

   What you sold, after discounts and returns. If this figure surprises you, the discount report is usually the reason — revenue given up does not appear as an expense, it simply never arrives.

3. 3

   Read Cost of Goods Sold

   What the things you sold cost you. This is where your product costs matter: if your costing is wrong, gross profit is wrong, and every conclusion below it is wrong too.

4. 4

   Gross Profit is the shop's engine

   Net sales minus cost of goods sold. This is the money the business actually generated before any of your bills. Watch it as a percentage over time rather than as an amount — an amount grows with volume, a percentage tells you whether the work is getting better or just bigger.

5. 5

   Read Operating Expenses

   Rent, salaries, utilities, everything you logged as an expense. These come out of gross profit. An expense you never recorded makes this statement flatter you, so the discipline of logging expenses is what makes the bottom line real.

6. 6

   Do not skip Inventory Loss

   This section is the one most owners have never seen, and it is where returns and counts show up:

   • Merchandise written off — stock you gave up on, including returns you binned.
   • Supplier returns not credited — goods you sent back that the supplier never credited you for. That is money you are owed and are not chasing.
7. 7

   Finish at Net Profit

   Gross profit, minus operating expenses, minus inventory loss. This is the number the business made. Read it beside the previous period, not on its own.