Finance & Operations · StudentHub Lesson
Profit & Loss Basics
A profit and loss statement shows whether a business earned more than it spent over a period.
What you will learn
- Define revenue, expenses, and profit
- Explain the structure of a simple profit and loss (P&L) statement
- Differentiate gross profit from net profit
- Calculate profit given revenue and expenses
- Identify why tracking P&L regularly matters
Watch the lesson
We haven’t confirmed a lesson video that matches this topic closely enough yet, so the notes below are the lesson for now. A recommended video will be added once we’ve checked one properly.
Topic notes
Main Idea
A profit and loss (P&L) statement summarizes a business's revenue and expenses over a period to show whether it made a profit or a loss.
Key Concepts
- Revenue: total money earned from sales
- Expenses: costs incurred to run the business (materials, rent, wages)
- Gross profit: revenue minus cost of goods sold (COGS)
- Net profit: gross profit minus all other operating expenses, taxes, and interest
- Tracking P&L regularly helps spot problems early and guide decisions
Definitions
- Cost of goods sold (COGS): direct costs of producing goods/services sold
- Gross profit = Revenue − COGS
- Net profit = Gross profit − Operating expenses − Taxes − Interest
Formulas
- Gross Profit = Revenue − COGS
- Net Profit = Gross Profit − Other Expenses
Examples
A lemonade stand earns $200 in sales (revenue). Ingredients cost $50 (COGS), so gross profit = $150. Other costs like a permit fee ($20) bring net profit to $130.
Common Mistakes
- Confusing revenue with profit
- Forgetting to include all expenses (e.g., hidden fees, taxes)
- Not tracking P&L regularly, missing early warning signs of financial trouble
Key concepts
Important terms
- Revenue
- Total money earned from sales before any costs are subtracted.
- Gross profit
- Revenue minus the cost of goods sold.
- Net profit
- Gross profit minus all other expenses, taxes, and interest.
Worked examples
Problem
A store has $500 revenue, $200 cost of goods sold, and $100 in other operating expenses. What is the net profit?
- 1. Gross profit = 500 - 200 = 300
- 2. Net profit = 300 - 100 = 200
Answer: $200
Quick revision
- Revenue = total sales income
- Gross profit = Revenue − COGS
- Net profit = Gross profit − other expenses
- P&L should be tracked regularly
- Revenue is not the same as profit
Check your understanding
Question 1 · Multiple choice
What is gross profit?
Question 2 · Multiple choice
If revenue is $1000, COGS is $400, and other expenses are $200, what is net profit?
Question 3 · True or false
Revenue and profit are the same thing.
Question 4 · Short answer
Define cost of goods sold (COGS).
Question 5 · Multiple choice
Why should a business track its P&L statement regularly?
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