Most store owners know exactly how much they sold this month and are less sure how much they earned. The difference disappears along the way: VAT, product cost, shipping, payment fees, advertising, software and rent. A profit and loss statement gathers all of these into one table and shows what is left. This guide explains what the statement contains, how to build one step by step, what a real month of an online store looks like in numbers, and the difference between gross profit and operating profit. At the end you will find the common mistakes and a way to get the statement automatically from your store's data.
What a profit and loss statement is
A profit and loss statement, also called a P&L or an income statement, is a summary of a period: how much came in, how much the products and the operation cost, and what remains. It answers one question: is the business earning money. Unlike a balance sheet, which shows the position at one moment, it shows what happened during a month, a quarter or a year.
It has four parts:
- Income: what came in from sales.
- Costs: what it cost to buy or make what was sold.
- Expenses: what it costs to run the business, even in a quiet month.
- Profit: the difference between income and everything else.
The statement, line by line
For an online store the statement usually looks like this:
- Sales: the total of orders, including VAT.
- Net revenue: sales without VAT. The tax belongs to the tax authority, so it is not the store's income.
- Cost of sales: the cost of the products that were sold. The full explanation is in the glossary entry on cost of goods sold.
- Gross profit: net revenue minus the cost of sales. See what gross profit is.
- Operating expenses: marketing, software, rent, salaries and everything that repeats each month.
- Operating profit: gross profit minus operating expenses. See what operating profit is.
After operating profit come interest and taxes, which lead to net profit. Your accountant prepares that part.
How to build a profit and loss statement
- Choose a whole period. A month, a quarter or a year. A whole period matters because costs such as rent and software are recorded by month.
- Add up income. Take the paid orders, subtract refunds, and calculate the total without VAT.
- Add the cost of sales. The cost of the products sold in the period, plus the costs tied directly to the sale, such as shipping and payment fees.
- Calculate gross profit. Net revenue minus the cost of sales. Divide by net revenue to get a percentage.
- Collect operating expenses. This is where supplier invoices come in. One missing invoice and the statement looks more profitable than it is. Automated invoice processing from email closes that gap.
- Calculate operating profit. Gross profit minus operating expenses, and the percentage of net revenue.
Example: one month of an online store
A store sells 120,000 in one month, including VAT. Without the VAT, revenue is 100,000:
- Net revenue: 100,000.
- Product cost: 42,000.
- Shipping: 6,000.
- Payment fees: 2,500.
- Cost of sales: 50,500.
- Gross profit: 49,500, which is 49.5% of net revenue.
- Advertising: 18,000.
- Software: 3,500.
- Rent: 4,500.
- Part-time employee: 9,000.
- Operating expenses: 35,000.
- Operating profit: 14,500, which is 14.5% of net revenue.
The figures in this article's examples are illustrative only and do not reflect actual customer data.
The store sells a lot, and out of every 100 of revenue it keeps 14.5. Advertising is the biggest expense, 18% of revenue. If advertising rises by four percentage points, operating profit falls to 10.5%.
Gross profit versus operating profit
The two numbers answer two different questions:
- Gross profit: do the products and the sales earn money. It shows whether pricing, costs and shipping are right.
- Operating profit: does the whole business earn money. It shows whether the fixed expenses are reasonable for the level of sales.
A store with high gross profit can still lose money when fixed expenses are too high. That is why both matter, and why you should follow both over time. You can see gross profit for each order separately in profitability calculation.
Where to put shipping
In classic bookkeeping, shipping to a customer is usually recorded as a selling expense, not as part of the cost of sales. If you classify it differently, gross profit changes, but operating profit stays the same. What matters is to pick one method and keep to it, so that periods can be compared.
How to read the statement
One number does not say much. The statement helps when you compare:
- Gross margin over time: a fall points to a higher product cost, expensive shipping or heavy discounts.
- Operating expenses against revenue: if they grow faster than sales, the business is becoming less efficient.
- The previous period: rising revenue with falling operating profit is a sign to stop and check.
- The same month last year: for a seasonal store this is the fair comparison.
Common mistakes
- Starting from sales including VAT. The VAT is not yours, and it inflates income.
- Forgetting product cost. A product created with no cost looks like a hundred percent profit.
- Invoices that were not collected. Missing expenses make profit look higher than it is.
- An incomplete period. Half a month against a full month is a misleading comparison.
- Expenses in a foreign currency with no conversion. Amounts in dollars and euros must be in one currency before you add them up.
The statement in StoreChart
StoreChart builds the statement automatically from the store's orders and from the expenses recorded in expense management:
- Periods: a closed month, quarter or year, with the previous period next to it.
- Lines: net revenue, cost of sales, gross profit, operating expenses and operating profit. All amounts exclude VAT.
- Chart: operating profit over the last 12 months.
- Provisional marker: when the month's invoice collection is not complete, the operating profit is marked as provisional.
- Warnings: the statement lists orders with no product cost and months that were never opened in expense management, both of which raise the profit shown.
The statement is not shown when you filter to a single store, because fixed expenses are recorded for the business as a whole. It ends at operating profit and does not replace your accountant. The monthly routine around it is in our guide to online store bookkeeping.
Key takeaways
- A profit and loss statement summarizes a period: income minus the cost of sales gives gross profit, and minus operating expenses gives operating profit.
- Start from net revenue, which means without VAT.
- Gross profit tests the products and the sales, and operating profit tests the whole business.
- A supplier invoice that was not collected inflates profit, so collect everything before you read the statement.
- StoreChart builds a statement up to operating profit. Net profit and the annual accounts stay with your accountant.
Frequently asked questions
How does a profit and loss statement differ from a balance sheet?
A profit and loss statement shows what happened over a period: income, expenses and profit. A balance sheet shows the position at one moment: what the business owns and what it owes. You need both, but only the profit and loss statement tells you whether the business is earning money.
Can I build a profit and loss statement in Excel?
Yes, and the structure is simple. Keeping it current is the hard part. Every order, refund and supplier invoice has to reach the spreadsheet, and in practice it falls behind after a few months. When the data already sits in your management system, the statement updates itself.
What goes into a monthly profit and loss statement for a small business?
Net revenue, the cost of sales, gross profit, operating expenses and operating profit. Add a column for the previous month, so you can see direction as well as size.
Is shipping part of the cost of sales?
It depends on how you record it. In classic bookkeeping, shipping to a customer is usually a selling expense. In StoreChart's statement, shipping and payment fees are included in the cost of sales. Operating profit comes out the same either way, but gross profit looks lower.
Does StoreChart's statement show net profit?
No. It ends at operating profit. Taxes, interest and financing costs are not included, and your accountant prepares the full annual accounts.
How often should I produce the statement?
Once a month, after all of the month's invoices have been collected. A quarterly and an annual statement help you see trends that a single month hides, such as seasonality or a slow rise in advertising cost.