The top line
Revenue or income is what the business earned in the period. Check that it matches what you invoiced or deposited, including any refunds and discounts.
Cost of goods sold
If you sell products, this is what the items cost you. Subtract it from revenue to get gross profit. Service businesses may have little or none.
Operating expenses
Rent, payroll, software, insurance, marketing and similar costs. Look for categories that are unusually large or unusually small compared with last month.
Net income
What is left after expenses. A profit on paper does not mean cash in the bank, because loan payments, owner draws and inventory purchases are not on this report.
What to check each month
Compare with the previous month and the same month last year. Look at expenses as a percentage of revenue. Ask about anything you do not recognize. Then read the balance sheet next to it.
Common questions
Is a profit and loss the same as a tax return?
No. Tax rules can treat some items differently, and your return may differ from your books.
How often should I look at it?
Monthly. Waiting until tax time hides problems.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.
