Profit and loss
A financial report that shows your business's income, direct costs, and operating expenses over a set period, resulting in a net profit or net loss figure. It answers the question of whether the business made or lost money in that period.
Also: P&L
The profit and loss report (P&L) summarises everything that flowed through your income and expense accounts over a chosen period — a month, a quarter, or a financial year. At the top sits turnover, then cost of sales giving gross profit, then operating expenses such as rent, salaries, and software subscriptions, leaving net profit or net loss at the foot. Unlike the balance sheet, which is a snapshot of one day, the P&L covers a span of time.
In Xero, the P&L is built automatically from every transaction posted to your chart of accounts. If you raise a £4,500 invoice in June, that £4,500 appears in June’s revenue — not when the client pays. A £600 accountancy bill entered in June reduces June’s profit even if you settle it in July. This accruals basis matches income and costs to the period they belong to, rather than when cash moved.
Why it matters at month-end
Closing the month starts with making sure the P&L is clean. Unreconciled bank lines, missing bills, or transactions coded to the wrong account all distort the figures. A net profit figure that looks wrong is usually the first sign of a miscoded entry — prompting a check of the trial balance and, if needed, a manual journal to correct it before the period is locked.