Excite Tax's answer for Utah owners: a P&L's bottom line becomes Schedule C line 31 or Form 1120-S ordinary income, so read income first, then expenses by return line.
Top to bottom, in the order the tax return is built. Start with income: sales, less refunds, less the cost of what was sold, is gross profit, Schedule C line 5. Then read each expense against the return line it will land on, and ask what is missing or doubled. The bottom line is the profit for the period: Schedule C line 31 for a sole proprietor, Form 1120-S line 22 for an S corporation. The five passes Excite Tax makes are below.
Yes. Profit and loss statement, P&L, income statement and profit and loss report are four names for one report: income minus expenses for a period, usually a month, a quarter or a year. It does not show the cash in the bank, what the business owns or what it owes; those are the balance sheet and the cash flow statement, explained below.
Yes, with no signup: the template table below is the P&L template, one row per line, with the Schedule C line and Form 1120-S line each row feeds. Copy the rows into a spreadsheet and replace the example amounts with the business's own.
Keep the books current rather than the report fancy. A P&L is only as current as the last day every bank and card account was categorised and matched to its statement. Connect the bank feeds, categorise weekly and reconcile monthly, and the P&L and balance sheet can be run on any day with numbers that hold up. The routine is below.
The P&L shows profit; the cash flow statement shows where the cash went. Loan principal and owner draws take cash without ever touching the P&L, which is how a profitable business runs short. In the worked example, $4,250 of loan principal and $45,000 of owner draws turn $57,243 of profit into $7,993 of new cash. The walk-through is below.
Only the interest does. Split every payment: the interest is a business expense, and the principal reduces the loan balance on the balance sheet, because only the interest is deductible. The loan money was never income either: money borrowed through a bona fide loan is not income. The entries are below.
Because some costs are real but not fully deductible. The common one is meals: the books record the whole bill, and the return deducts a percentage, in most cases 50%. An S corporation shows each difference on Schedule M-1, unless its total receipts and total assets are both under $250,000.
Excite Tax reads a profit and loss statement in five passes, in the order the tax return is built from it.
A P&L from unreconciled books is a guess with a layout. Before reading it, confirm every bank and card account matches its statement; what bank reconciliation is explains the check, and fixing messy books covers books that will not reconcile. The accounts themselves come from the chart of accounts.
Reading financial statements means reading them together. Profit with falling cash points to the cash flow statement; a loan balance that never shrinks points to the balance sheet; an expense line that jumped points back to the detail behind the P&L.
Excite Tax's example: an Orem landscaping company, a single-member LLC that files Schedule C, closes a year with the numbers below. Each row is one P&L line and the return line it feeds on the 2025 forms (Schedule C; Form 1120-S). To use it as a template, copy the rows into a spreadsheet and replace the amounts.
Profit and loss template: the Orem example, with the return line each row feeds (Schedule C, 2025; Form 1120-S, 2025)
| P&L line | Schedule C line | Form 1120-S line | Example |
|---|---|---|---|
| Sales | 1 | 1a | $184,000 |
| Refunds and credits to customers | 2 | 1b | ($2,000) |
| Cost of goods sold (plants and materials) | 4 | 2 | ($31,000) |
| Gross profit | 5 | 3 | $151,000 |
| Advertising | 8 | 16 | $3,600 |
| Vehicle fuel and repairs | 9 | 20, other deductions | $9,400 |
| Subcontractors | 11 | 20, other deductions | $14,000 |
| Insurance | 15 | 20, other deductions | $4,200 |
| Loan interest | 16b | 13 | $1,750 |
| Bookkeeping and legal fees | 17 | 20, other deductions | $1,500 |
| Yard rent | 20b | 11 | $12,000 |
| Supplies | 22 | 20, other deductions | $2,800 |
| Business meals | 24b, deductible part only | 20, deductible part only | $1,200 |
| Utilities and phones | 25 | 20, other deductions | $2,400 |
| Wages for employees, not the owner | 26 | 8 | $38,000 |
| Employer payroll taxes | 23 | 12 | $2,907 |
| Total expenses | 28, after the meals adjustment | 21 | ($93,757) |
| Net profit per books | The start of line 31 | The start of line 22 | $57,243 |
The payroll tax row is the employer's share on the $38,000 of wages: 6.2% social security and 1.45% Medicare. Only the interest from the loan payments is on the P&L. The owner's $45,000 of draws, the $4,250 of loan principal and the loan itself are missing on purpose: the wage line excludes amounts paid to the owner, only interest is deductible, and borrowed money is not income.
The P&L profit is not yet the tax number. The books recorded the full $1,200 of meals, and the return deducts 50% in most cases, so $600 comes back into profit. Line 28 total expenses become $93,157, and line 31 net profit becomes $57,843, which goes to Schedule 1 (Form 1040), line 3, and Schedule SE, line 2.
For an S corporation the same P&L lands on Form 1120-S line 22, ordinary business income, which passes to Schedule K, line 1, the shareholders' pro rata share. The walk from book profit to return income is Schedule M-1, and depreciation and travel and entertainment are the first differences it names. The owner's pay changes too: an S corporation owner who works in the business is paid wages, reported on line 7, compensation of officers, and distributions stay off the P&L; S corporation shareholder basis follows them.
A real-time financial picture of a small business means books current to the last reconciled day, not a live dashboard over uncategorised transactions. The IRS standard is modest: any recordkeeping system that clearly shows income and expenses, where the books show gross income, deductions and credits. A picture worth checking every week needs more than that.
That rhythm is what Excite Tax's monthly close is for. Books kept in a spreadsheet can follow it too; bookkeeping in Excel shows the ledger.
The P&L answers whether the business made money. The cash flow statement answers where the money went, in three groups: operating activity, investing activity such as equipment, and financing activity such as loans and owner draws. A business can show a healthy profit and still run short, because loan principal and owner draws take cash that the P&L never sees.
From profit to cash: the Orem example on the cash basis (loan principal; owner draws)
| Amount | |
|---|---|
| Net profit per books, from the Schedule C-line template | $57,243 |
| Loan principal repaid (not deductible) | ($4,250) |
| Owner draws (not wages on Schedule C) | ($45,000) |
| Increase in cash for the year, after principal and draws | $7,993 |
Excite Tax's reading: the owner took $45,000 out of a business that earned $57,243 (draws are not wages), and the loan took $4,250 more (principal, not an expense); $7,993 stayed. The tax is figured on line 31's $57,843, not on the $7,993 left in the bank, so the money for estimated tax has to come out of the draws. On the accrual basis the statement also adjusts for what customers owe and what the business owes its suppliers, which is where a growing business finds its cash tied up.
A loan touches the P&L in one place only: interest. The entries are the same in QuickBooks, in Xero or in a spreadsheet.
Excite Tax's example: the Orem company's 12 monthly payments of $500 on a loan for mowers bought in an earlier year split into $1,750 of interest and $4,250 of principal (payments go to interest first, the rest to principal). Only the $1,750 of interest is a business expense, on Schedule C line 16b. Book the whole $6,000 as expense and the P&L understates profit by $4,250, because only the interest is deductible; a return built from it understates it too.
A lender reviewing a small-business loan usually wants the P&L and the balance sheet together, from reconciled books, and the loan balance on one should agree with the interest on the other. Books kept that way answer the request in a day rather than a month.
For a Utah sole proprietor or single-member LLC, the P&L's bottom line becomes state tax too. Schedule C line 31 flows into the federal return's income, and Utah starts from there: a resident's state taxable income is adjusted gross income after Utah's additions, subtractions and adjustments. The rate is 4.45% under the section in effect from January 1, 2026, so an expense line that holds loan principal or owner draws understates the profit both returns tax. An S corporation's ordinary income reaches its Utah owners the same way, through their share of Schedule K, line 1.
Hand the books over when keeping them costs more hours than the business can spare, or when they stop agreeing with the bank.
Excite Tax keeps these books; the return they feed is reviewed and signed by a licensed CPA at TBD CPA LLC.
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