# P&L (Profit and loss account)

> A profit and loss account (P&L) shows your income and expenses for a period, such as a month or a financial year, and the profit or loss that results. It tells you whether the business actually earned money, which a bank balance alone cannot.

In EaseDesk: EaseDesk builds your P&L from every invoice, bill and voucher as it is posted, with closing stock from your stock valuation. Open Accounts → Financial statements → Profit & loss for any period, for one branch or the whole business, compared with last year, in the vertical form or the Schedule III form.

## Why it matters to your business

Sales growth feels like success, but only the P&L tells you whether that growth made money. It
shows your margin, which costs are rising, and whether a branch or product line is carrying the
rest. Banks read it for loans, and your income-tax return starts from it.

## How it works

A trading business shows its P&L in two parts. The trading account works out gross profit; the
profit and loss account then deducts running costs. For one month:

| | Amount |
|---|---|
| Sales (before GST) | ₹10,00,000 |
| Opening stock | ₹4,00,000 |
| Add purchases | ₹7,00,000 |
| Less closing stock | ₹4,50,000 |
| Cost of goods sold | ₹6,50,000 |
| **Gross profit** (35%) | **₹3,50,000** |
| Rent | ₹60,000 |
| Salaries | ₹1,40,000 |
| Electricity | ₹15,000 |
| Freight outward | ₹25,000 |
| Interest on loan | ₹10,000 |
| Depreciation | ₹20,000 |
| **Net profit** (8%) | **₹80,000** |

The gross margin shows your pricing and buying; the gap between gross and net profit shows your
overheads. If gross margin slips from 35% to 30% on the same sales, net profit drops by ₹50,000:
most of this month's profit.

## Common mistakes

- **Closing stock left out or guessed.** Every rupee of error in closing stock is a rupee of error
  in profit. Value stock from your records.
- **Capital items booked as expenses.** A new machine or computer is an asset, depreciated over its
  life, not an expense in the month you buy it.
- **Missing year-end entries.** Rent, salaries and interest that are due but unpaid on 31-03 belong
  in that year's P&L.
- **Drawings shown as expenses.** Money you take out for personal use reduces capital, not profit.
- **Comparing gross figures with GST.** Compare sales and costs before GST, or your margins will
  look wrong.

## Questions

### What is the difference between gross profit and net profit?

Gross profit is sales less the cost of the goods sold (opening stock, purchases and direct expenses, less closing stock). Net profit is what remains after all other expenses, such as rent, salaries, interest and depreciation.

### Why is my profit different from the cash in my bank?

Profit counts a sale when you invoice it and an expense when you incur it, whether or not money has moved. Money stuck in customer dues or stock, loan repayments and new equipment all change cash without changing profit in the same way.

### Should GST be part of sales in the P&L?

No. GST you charge is collected on behalf of the government and is shown as a liability. Sales and purchases in the P&L are before GST, except that GST you cannot claim as input tax credit becomes part of the cost.

### How often should I look at my P&L?

Monthly is a good habit. A monthly P&L, compared with the same month last year, shows falling margins or rising costs while there is still time to act.

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Source: https://www.easedesk.com/glossary/profit-loss · Updated 2026-09-28 · EaseDesk