The profit and loss account: structure, example and template

In short. The profit and loss account (P&L) summarises a company’s income and expenses for a period and shows whether it made or lost money. For decision-making, the most useful version is the management (analytical) P&L, which goes from sales to net profit through five intermediate margins. You can download the Excel template and use it with your own company’s figures.

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Updated on 7 November 2026.

Structure of the management P&L

Line	How it is calculated
Net sales	Revenue for the period, excluding VAT and discounts
– Cost of sales	Opening inventory + purchases – closing inventory
= Gross margin	Sales – cost of sales
– Direct costs	Direct labour, commissions and other costs tied to each sale
= Contribution margin	Gross margin – direct costs
– Operating expenses (OPEX)	Selling + general and administrative expenses
= EBITDA	Contribution margin – OPEX
– Depreciation and amortisation	Wear and tear of assets
= EBIT	Operating profit
± Net financial result	Financial income – financial expenses
= EBT	Profit before tax
– Corporate income tax	Standard rate of 25% in Spain
= Net profit	What the company earns

One of the main purposes of accounting is to report regularly on the results of the company’s activity. The financial statement that reports the company’s result and its components, income and expenses, is the profit and loss account (the “P&L“).

Comparing income and expenses at the end of a given period gives the surplus or final result: if income is higher than expenses, the company makes a profit; if income is lower than expenses, it makes a loss.

Income

The Spanish General Accounting Plan (Plan General de Contabilidad, “PGC“) defines income as increases in the company’s equity during the period, either as inflows or increases in the value of assets, or as decreases in liabilities, provided they do not come from contributions, monetary or otherwise, by shareholders or owners. Recording income means recognising or increasing an asset, or removing or reducing a liability (or a combination of both).

As a general rule, income is recognised on an accrual basis: it is earned and must be recorded when the company has completed the process that entitles it to the consideration and an exchange or transaction has taken place. Sales income is therefore recognised on delivery, income from services when the services have been provided, and income from the use of assets when they are used or as time passes.

Under the PGC, income from the sale of goods and the provision of services is measured at its net amount, that is, after deducting discounts of any kind.

The PGC also sets other rules for recording income:

• Income may include the interest built into trade receivables due within one year, when there is no contractual interest rate and the effect of not discounting the cash flows is not significant.
• Taxes on sales (e.g. VAT) and amounts collected on behalf of third parties are not income.
• If there are doubts about collecting an amount already recognised as income, the amount unlikely to be collected is recorded as an impairment expense, not as lower income.

Expenses

The PGC defines expenses as decreases in the company’s equity during the period, either as outflows or decreases in the value of assets, or as the recognition or increase of liabilities, provided they do not come from distributions, monetary or otherwise, to shareholders or owners.

The most common types of expense are the monetary amounts of:

• Resources consumed or cancelled during the period as a result of assets written off, liabilities recognised or services received in exchange for a transaction;
• The share of asset decreases attributable to the period (e.g. depreciation);
• Losses arising from actual or potential decreases in the value of assets or increases in liabilities;
• Liabilities recognised or assets transferred free of charge.

As with income, expenses are recognised on an accrual basis, when the products or services that cause the decrease in assets or increase in liabilities have been consumed.

A P&L can classify expenses by nature or by function.

By nature, the PGC sets out the following subgroups:

• External services;
• Taxes;
• Personnel expenses;
• Financial expenses;
• Losses on non-current assets and exceptional expenses;
• Depreciation and amortisation;
• Impairment losses and other provisions.

By function, expenses can be divided into:

• Cost of goods sold;
• OPEX (selling expenses and general and administrative expenses);
• Financial expenses;
• Corporate income tax.

The profit and loss account

The P&L gathers the income and expenses of the period (except those recognised directly in equity). The difference between them gives the net result for the period, broken down into several intermediate margins.

The official P&L shows two main results: the operating result and the financial result. Together they give the profit before tax, from which corporate income tax is deducted (or added) to obtain the net result for the period.

Below is the official (non-abridged) P&L format, showing the items that make up these intermediate margins:

The official P&L is shaped by legal and tax requirements for reporting to third parties, so it is not very useful for decision-making.

For a more thorough analysis, the P&L can be reclassified alongside the PGC format. This is what we call the management (analytical) P&L.

The management (analytical) P&L

The management P&L is built on economic criteria only and gives partial results, so the information it provides is better suited to management and decision-making: it shows results by product, product line, market and so on.

It has the following structure, with several intermediate results that all provide useful information on the way to the final result:

• Sales: sales volume indicates the size of the company, and year-on-year growth suggests whether it is at an early or mature stage. For example, a recently launched startup would usually grow its sales faster than a company like Apple or HP.
• Cost of sales: for trading companies, it is opening inventory (OI) plus net purchases for the period (NP) minus closing inventory (CI).

CS = OI + NP – CI

Manufacturers use the same calculation, replacing net purchases with the cost of finished goods (CFG):

CFG = Opening work in progress + Cost of production for the period – Closing work in progress

In turn, the cost of production for the period (CPP) is:

CPP = Cost of raw materials used + Direct labour + Manufacturing overheads

And the cost of raw materials used (CRMU) is:

CRMU = Opening raw materials inventory + Net purchases of raw materials – Closing raw materials inventory

• Gross margin: a particularly important figure, because it is the result of the core activity and must absorb all the expenses not included in the cost of the goods sold or the service provided. In general, only an acceptable gross margin allows an adequate net result.

To check whether the company keeps an adequate gross margin, compare it with other companies in the sector and track it against sales year after year. If the gross margin holds or grows while sales keep growing, the company is growing without having to cut prices.

• Direct costs: costs directly linked to producing the goods or delivering the service.
• Contribution margin: gross margin minus direct costs.

As its name suggests, the contribution margin tells the company how much a given product contributes to covering the fixed costs of the business. A good contribution margin helps achieve good profitability, because it comfortably covers operating expenses and leaves a large enough surplus.

• OPEX (operating expenses): selling expenses, such as sales salaries and commissions, advertising, depreciation of assets used for selling and transport of goods sold.

OPEX also includes general and administrative expenses: salaries of management and administrative staff, office supplies, legal fees and depreciation of furniture and IT equipment, among others.

These should also be analysed against sales. If sales grow faster than operating expenses, the company is selling more with proportionally fewer resources.

• EBITDA: the company’s earnings before financial expenses, taxes, depreciation and amortisation. Its purpose is to give a true picture of what the company earns or loses in its core business.

In other words, EBITDA tells you quickly and simply whether the business is profitable, regardless of other adjustments or how it is financed.

It is also very useful for comparing companies, their history, health and vitality, because it is not affected by leverage, taxes or depreciation (which are very high in some companies). It allows the profitability of different companies, even in different countries, to be compared on the same basis.

• EBIT: earnings before interest and taxes.
• EBT: earnings before tax.
• Net profit: the company’s final profit. Dividing it by the investment made gives the return of the business.

Frequently asked questions

What is the difference between the official and the management P&L?

The official P&L follows the accounting standards and is used to report to third parties. The management P&L groups costs by management criteria and is used to make decisions.

What is EBITDA and why does it matter?

It is the result of the business before interest, taxes, depreciation and amortisation. It lets you compare the profitability of the core business across years and across companies, and it is the basis of most valuations.

What is a good gross margin?

It depends on the sector: a distributor may work with margins of 20–30%, while a services or software company can reach much more. The most useful comparison is with similar companies and with your own previous years.

How often should the P&L be reviewed?

At least every quarter, and ideally every month, comparing it with the budget.

In this article we have looked at the items that make up the P&L (income and expenses) and at its structure, distinguishing between the format required by law and the one used for management analysis.

As Adam Smith put it, “The only good budget is a balanced budget.” The intermediate results of the management P&L and the final result give very relevant information about the company. In particular, the final result is directly linked to the profitability of the business, which is why it deserves careful study and analysis.

The P&L tells you how the year went. If you want to know what is holding your company’s growth back, take the free strategic self-assessment: in about 10 minutes you will receive a report with your priorities.

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And if you have not done so yet, download the profit and loss template.

Further reading: Runway: the indicator that defines the survival of your company · Cash flow · The DCF method to value a company