Business Accountants: Understanding Your Profit and Loss Statement: A Guide for Wellington Business Owners

If you’re a business owner in Wellington, understanding your Profit and Loss Statement (P&L) is essential to managing profitability and making confident financial decisions. Often referred to as an Income Statement, this report gives you a clear view of your income and expenses over a specific period.

Unlike your balance sheet, which provides a snapshot of your financial position at a single point in time, your P&L tracks performance across a chosen time frame — whether monthly, quarterly, or annually. Together, these two reports form the foundation of your business’s financial insight.

What Does a Profit and Loss Statement Include?

The P&L is generally divided into two main categories:

1. Income (or Revenue)

This section includes all money earned through your core business activities — such as selling products or services. It may also capture secondary income such as bank interest, grants, rental income, or capital gains.

2. Expenses

Expenses fall into two major types:

• Direct Costs (Cost of Goods Sold): These are the costs directly tied to income-generating activities. For example, if you’re reselling products, the wholesale purchase cost is a direct expense. These may also include freight, contractor costs, or specific equipment.

• Operating Expenses (Overheads): These are the fixed or variable costs of running your business — things like rent, utilities, software subscriptions, wages, and professional services. Even if your income drops, these costs often remain.

Some expenses, like contractor or merchant fees, may be direct or indirect depending on the nature of your business.

Why Your P&L Matters for Business Decision-Making

Your net profit (or loss) — often called the bottom line — is calculated by subtracting total expenses from total income. While it’s tempting to focus on this number alone, your P&L provides far more insight:

• Are your direct costs being correctly allocated?

• Are you charging enough to recover all billable expenses?

• Are there clear seasonal patterns in income or expenditure?

• Are your profit margins improving over time?

By reviewing your P&L alongside your balance sheet, you get a complete picture of your business’s financial health — helping you make smarter, more strategic decisions.

Work with Outside Accounting Wellington

At Outside Accounting Wellington, we help local businesses interpret and act on their financial reports. Whether you need help preparing your statements, understanding your cost structure, or planning for growth, our business advisors are here to help.

Book a session today to dive into your financial reports with our expert team — and take control of your business performance with confidence.