A profit and loss statement (also called a P&L or income statement) shows how much money came in, how much went out, and what was left over during a specific time period. It reads from top to bottom, and each section builds on the one above it.

The top line is revenue. This is the total amount you billed or earned during the period. For a plumbing company, that’s every service call, repair job, and installation you invoiced. Revenue tells you how busy you were, but it says nothing about whether you actually made money. A $500,000 revenue year sounds great until you see what it cost to generate it.

Below revenue is cost of goods sold or cost of services. This includes the direct costs tied to the work you performed. For trades and construction businesses, think materials, subcontractor payments, and direct labor for your crew on job sites. These are costs that only exist because you did the work. If you had no jobs, these costs would be zero.

Revenue minus cost of services gives you gross profit. This number is critical. It tells you how much you kept from each dollar of revenue after covering the direct cost of doing the work. If your gross profit margin is 40%, you’re keeping 40 cents of every dollar before overhead. If it’s 15%, you have very little room to cover everything else. Watching gross profit over time shows whether your pricing is holding up or whether material and labor costs are eating into your margins.

Next come operating expenses. These are the costs of running the business regardless of how many jobs you do. Rent, insurance, vehicle payments, office supplies, phone bills, accounting fees, advertising. These expenses exist whether you’re booked solid or sitting idle. Keeping operating expenses in check matters because they eat directly into your profit.

At the bottom is net income. This is what’s left after everything is paid. Positive means you made money. Negative means you spent more than you earned. Net income is the final score, but don’t stop there. A healthy net income built on thin gross margins is fragile. One bad month of material cost increases or a slow week and you’re in the red.

The real value of a P&L comes from comparing periods. Look at this month versus last month, or this quarter versus the same quarter last year. Are revenues growing? Is gross profit margin consistent or shrinking? Are operating expenses creeping up? These trends tell you more than any single month’s numbers ever will.

One thing that trips up a lot of business owners is confusing profit with cash. Your P&L might show a $20,000 profit, but if clients haven’t paid their invoices yet, that money isn’t in your bank account. The P&L shows what you earned, not what you collected. That’s why full-service bookkeeping matters. Accurate categorization is what makes each line on the P&L meaningful instead of misleading.

If your P&L doesn’t break out cost of services from operating expenses, or if everything is lumped into a few vague categories, the statement won’t tell you much. A CPA for construction businesses can set up your chart of accounts so the P&L actually reflects how your business operates, giving you numbers you can use to make real decisions about pricing, hiring, and where to cut back.