What is a profit and loss statement?

A profit and loss statement (P&L, also called an income statement) summarizes a business's revenues, costs, and expenses over a specific period, showing whether the business operated at a net profit or net loss. It is one of the three core financial statements lenders request.

The profit and loss statement (P&L) answers: did your business make or lose money over a given time frame? It runs from the top line (total revenue) down through every major cost category to the bottom line (net income or net loss). Lenders, investors, and accountants all rely on it — and it's one of the documents most commonly requested during a small business funding review.

Structure of a P&L statement

Revenue (or gross sales) — total income from goods sold or services rendered before any deductions.
Cost of Goods Sold (COGS) — direct costs tied to producing what you sell (materials, direct labor).
Gross profit — revenue minus COGS. Shows what's left before overhead.
Operating expenses — overhead costs like rent, utilities, payroll, marketing, insurance.
Operating income (EBIT) — gross profit minus operating expenses.
Net income (or net loss) — what remains after all costs, including interest and taxes.

How lenders use your P&L

Lenders typically request 1–2 years of P&Ls (often alongside tax returns) to verify revenue trends and profitability. A P&L showing consistent gross profit margin indicates the business model is sound; one showing shrinking margins or mounting operating losses raises questions about repayment capacity. The SBA's financial management guidance lists the P&L as a core tool for understanding business viability.

P&L vs. cash flow statement — why both matter

The P&L uses accrual accounting — revenue is recorded when earned, expenses when incurred, regardless of when cash moves. That means a P&L can show profit even when the bank account is thin (if invoices haven't been collected yet). The cash flow statement captures actual cash movement. Lenders often review both together — the P&L shows structural profitability; the bank statements show real liquidity. The SEC's investor education materials explain all three core financial statements.

What if you don't have a formal P&L?

Most accounting software generates a P&L in minutes from transaction data. If your records are informal, most business funding applications will accept bank statements paired with a simple revenue-and-expense summary prepared by your accountant. If you're ready to apply, ClearValue Lending walks you through exactly what documents your matched lender will need — no guesswork.

What the sources say

The SEC identifies the income statement (P&L) as one of the three required financial statements and describes it as showing a company's financial performance over a reporting period. — SEC / Investor.gov
The SBA's financial management guide for small businesses lists the income statement alongside the balance sheet and cash flow statement as core documents for understanding business health. — SBA
Lenders commonly request 1–2 years of profit and loss statements alongside tax returns when underwriting a business loan. — SBA

Key takeaways

A P&L shows revenue, expenses, and net profit or loss over a specific period — it is not the same as cash flow.
Lenders use 1–2 years of P&Ls to assess profitability trends and repayment capacity.
Gross profit margin (revenue minus COGS) is the first health signal; net income is the final one.
Accrual accounting means the P&L may show profit even when cash is tight — lenders review bank statements alongside it.
Most accounting software generates a P&L automatically; no formal accountant is required to produce one.