# What is a profit and loss statement for a small business?

A profit and loss statement, also called an income statement, lists a business's income and expenses for a period, such as a month, quarter or year, and shows the difference as net profit or loss. For example, $8,000 of income minus $5,200 of expenses is a $2,800 profit, a 35% margin. For a sole proprietor, IRS Schedule C (Form 1040) is titled Profit or Loss from Business. A ProfitDrawer bookkeeping spreadsheet builds one for every month.

A simple monthly profit and loss statement:

| Line | Amount |
|---|---|
| Income (sales, services) | $8,000 |
| Supplies | $1,900 |
| Vehicle and fuel | $1,100 |
| Advertising, software, insurance and other | $2,200 |
| **Total expenses** | **$5,200** |
| **Net profit** | **$2,800** |

Points to know:

- Owner draws are not expenses. Money you take out for yourself does not lower the profit of a sole proprietorship.
- Under the cash method, income counts when you receive it; under an accrual method, generally when you earn it.
- For a sole proprietor, the yearly version is the starting point for Schedule C.
- Compare months side by side to spot falling sales or rising costs early.

A profit and loss statement shows performance over time. A balance sheet is a different report: a snapshot of what the business owns and owes on one date.

General information, not tax advice.

- Source: [About Schedule C (Form 1040), Profit or Loss from Business (IRS)](https://www.irs.gov/forms-pubs/about-schedule-c-form-1040)
- Updated: 2026-10-29
- Published: 2026-10-29
- Category: Bookkeeping basics
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