P&L

A P&L—Profit and Loss statement, also called an income statement—summarizes revenue, costs, expenses, and resulting profit or loss over a period.

Why it matters

Engineering decisions affect the P&L through payroll, cloud infrastructure, software licenses, support costs, and the revenue enabled by products. Leaders use it to understand whether operating activity creates or consumes economic value.

Mental model

Start with revenue, subtract the direct cost of delivering the product to obtain gross profit, then subtract operating expenses to reach operating profit or loss.

P&L versus cash flow

The P&L records economic activity under accounting rules, while cash flow tracks when money actually enters or leaves the company. A company can be profitable on its P&L and still have a cash shortage.

Common mistakes

• Treating revenue as profit.
• Assuming accounting profit equals cash available.
• Ignoring infrastructure and support costs when evaluating product economics.