KNIGHT BOOKKEEPING · SOUTHERN NEW HAMPSHIRE
How to read a contractor's profit and loss report
A profit and loss report can help a contractor understand a period's income and expenses. It becomes more useful when the dates, accounting basis, and categories are consistent.
By Alexander Knight, owner of Knight Bookkeeping
Check the report settings first
Choose the period you want to review and confirm cash or accrual basis. Compare like periods using the same settings. A monthly report and a year-to-date report answer different questions. A large change is a starting point for investigation, not proof that a category is wrong.
Review income before judging the bottom line
Ask whether reported revenue fits the work billed or payments received under the selected basis. Timing differences, credits, missing transactions, and duplicated deposits can distort the picture. Review unusual entries with their supporting records rather than relying only on the total.
Understand direct costs and overhead
Depending on the agreed account structure, materials and subcontractor costs may be separated from operating overhead. Consistent categorization helps make comparisons meaningful. If categories change from month to month, an apparent improvement may reflect classification rather than business performance. Ask what belongs in each category and document the convention.
Separate company results from job results
A company-wide profit and loss report does not establish the profitability of each job. Reliable job reporting requires an appropriate setup and consistent assignment of relevant income and costs. Work in progress, retainage, progress billing, and other specialized construction needs should be assessed separately. Do not assume a basic bookkeeping package includes them.
Review questions alongside the numbers
Useful questions include whether unusual costs are explained, unpaid invoices need follow-up, or the period contains a one-time expense. Also compare the report with cash and other relevant balances. Knight Bookkeeping supports owner-led service businesses and trades using QuickBooks Online. A discovery call can establish the routine bookkeeping need and whether any specialized reporting falls outside the proposed scope.
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