Click to expand transcript
What is a profit and loss statement? A profit and loss statement, sometimes called a statement of financial activity, is one of the most useful financial reports you’ll ever run.
It shows how much money came in, how much money went out, and whether you ended up with a profit or a loss. Think of it like a closing night report for your finances.
It sums up what happened over a set time, a month, a season, or a year, and organizes it by category; ticket sales, grants, artist fees, venue costs, and so on.
Here’s the key, those categories don’t just appear out of thin air. They come from your chart of accounts, the master list of labels you or your bookkeeper sets up. You get to decide how simple or detailed they are.
Maybe production costs is one line, or maybe you split it into costumes, lighting, and sound. The structure should reflect what’s useful for you. For example, say your company brought in $50,000 last season. Your P&L might show $20,000 from grants, $15,000 from ticket sales, $10,000 from a commission, and $5,000 from donations. On the expense side, you might see $25,000 for personnel, $10,000 for venue costs, $5,000 for marketing, and $2,000 for insurance.
Subtract it out, and you see whether you ended in positive or negative. Why does this matter? Because it gives you a clear picture you can’t get just by checking your bank balance. It helps you see patterns. Are your expenses creeping up in one area? Did a program bring in more than expected? Are you leaning too heavily on one funder?
A profit and loss isn’t about judgment, it’s about clarity. It’s the story of your money laid out in black and white so you can make better choices going forward.
What is a Profit & Loss?
The Profit & Loss is one of the “big 3” financial statements (aka reports), along with the Balance Sheet and Budget vs. Actuals that most organizations look at every month.
A “profit and loss” shows all the income (money in) and expenses (money out) over a specific time period. It groups the income and the expenses into categories based on the chart of accounts that you or your bookkeeper set up. You might hear it called a “statement of financial activity”, an “income statement”, or abbreviated as “P&L”. In the for-profit world, it’s called a “profit & loss” or “income statement”, in the nonprofit world it’s a “statement of activity”.
It’s all the same thing – a list summarizing what income came in and what expenses went out during a specific period of time (e.g., a month, a quarter, a year).
A P&L is a zoom-out look at how money is coming in and going out of your organization. Take a look at this example Profit & Loss Statement for a small arts organization that has a fiscal sponsor.
Where do I get a Profit & Loss?
If you’re already tracking your individual expenses and income transactions, high five! It’s easy to generate a Profit and Loss Statement from this list. If you’re using bookkeeping software like Quickbooks Online, Wave, or Xero, there are built-in ways to generate one. You’ll go to the section for “reports” and choose “profit and loss”. Pro tip: the formal name is a “statement of activity”, so if you don’t see an option for “profit and loss” in your bookkeeping system, try looking for “statement of activity” instead.
If you’re using a spreadsheet to track your transactions, there are a few different ways to make a P&L out of your data. We’ll be adding resources about spreadsheet bookkeeping in the future – stay tuned.
What goes into a Profit & Loss Statement?
In order to summarize your income and expenses into a list by categories, you need to list out each transaction separately, line by line, in a way that answers the questions: when, how much, who, what, and why? In other words, you need to practice bookkeeping (more on that here).
Once you’ve got that list of transactions, you might have something like this for your income for December of 2028:
| Date | Amount | Name | Category (Account) | Description |
| 12/1/28 | $ 1,000.00 | Latinx Arts Foundation | Foundation Grants | General Operating support grant for 1 year |
| 12/29/28 | $ 25.00 | Skye Ingram | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 15.00 | Jade Stewart | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 300.00 | Nolan Mendez | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 100.00 | Londyn Alexander | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 250.00 | Kingston Beil | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 43.66 | Itzel Anderson | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 175.00 | Jacob Carpenter | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 103.50 | Lilly Conner | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 125.00 | Armando Dorsey | Individual Donations | end-of-year campaign donation |
| 12/29/28 | $ 150.00 | Addyson Acosta | Individual Donations | end-of-year campaign donation |
| 12/30/28 | $ 500.00 | Jensen Browning | Individual Donations | end-of-year campaign donation |
| 12/31/28 | $ 100.00 | Princess McLean | Individual Donations | end-of-year campaign donation |
Your expenses might look something like this for the same time frame:
| Date | Amount | Name | Category (Account) | Description |
| 12/1/2028 | $ 250.00 | Marta’s Kitchen | Program Catering | green room food for artists and crew at 12/15 holiday show |
| 12/1/2028 | $ 450.00 | Women’s Building | Office Rent | monthly office rent for Dec 2025 |
| 12/5/28 | $ 39.88 | Out of the Closet | Program Supplies | mugs and tshirts for end-of-year gathering white elephant gifts |
| 12/8/28 | $ 68.50 | Flax Art Supply | Program Supplies | drawing paper and colored pencils for table fidgets at 12/15 holiday show |
| 12/13/28 | $ 1,500.00 | Nina West | Independent Contractors | headliner for 12/15 holiday show |
| 12/15/2028 | $ 500.00 | Jane Dozzle | Independent Contractors | Holiday show sound tech |
| 12/20/28 | $ 250.00 | Amer’s Cafe | Program Catering | food for end-of-year community gathering on 12/20 |
The profit and loss adds up all of those individual transactions and groups them together by category. So the P&L for December 2028 would look something like this:
| INCOME | |
| Foundation Grants | $ 1,000.00 |
| Individual Donations | $ 1,887.16 |
| Income TOTAL | $ 2,887.16 |
| EXPENSES | |
| Independent Contractors | $ 2,000.00 |
| Office Rent | $ 450.00 |
| Program Catering | $ 500.00 |
| Program Supplies | $ 108.38 |
| Expenses Total | $ 3,058.38 |
| NET INCOME | -$171.22 |
In this case, the net income was a loss of $171.22 for December 2028. Does that mean that the organization is in debt for that amount? Not necessarily! It all depends on where they started out the month and what else might be owed to them. But more on that when we get to the Balance Sheet.
Where does a Profit & Loss come from?
Profit & Loss statements add up all the income transactions and all the expense transactions for a specific period of time. So, to make a Profit & Loss, you need to be logging those transactions, i.e., doing bookkeeping (more on bookkeeping in this learning guide).
What should I look for in a Profit & Loss?
First, look all the way down to the bottom line, which should say “net income”. This number shows the difference between your income and expenses. If it’s positive, congratulations – you made a profit! If it’s negative, you spent more than you brought in during the specific time period that the P&L is looking at. Ask yourself: is this where I expected to be?
Next, let your eyes scan up and down the list. Do any numbers jump out at you as being bigger or smaller than you expected? Does anything look like it’s in the wrong category?
For example, you know you had a large event with about $500 in catered food, but you don’t see anything in the category for “program catering”. But, you see $500 in “website hosting”, even though your website bill won’t come due for another 6 months and you know it’s only $79.99. In that case, it’s likely that the catering transaction got categorized incorrectly. You can flag that for whoever handles your finances (even if it’s you!) and track down what’s going on there.
The categories are there to make it easier for you to understand what’s going on with your money, so make sure you’ve got them arranged in an order that makes sense to you (more on that when we get to the Chart of Accounts)
Knowing how you ended the previous period of time (month, quarter, or year) helps you make strong decisions for the next period. You can make adjustments to your plans based on solid information, instead of just guessing or hoping for the best.
Sample Download
Keywords
Click a keyword to see related resources.
