Many shop owners in Jaipur, Nagpur or Coimbatore judge their business by one number: how much cash is left in the drawer at night. It feels right, but it hides a lot. A month with big supplier payments can look terrible while the shop was actually profitable, and a month where old udhaar came back can look great while margins quietly shrank. A profit & loss (P&L) report shows what the shop really earned.
Quick answer
Net profit = sales − cost of goods sold − running expenses. Read the P&L top to bottom: first check sales, then gross profit (how much you earn on the goods themselves), then net profit (what is left after rent, salaries and other costs). Compare each line with last month, not just the final number.
The lines on a retail P&L
- Sales. Total value of goods sold in the period, after returns and discounts. For a regular GST-registered shop, use the taxable value excluding GST.
- Cost of goods sold (COGS). What the goods you sold cost you: opening stock + purchases − closing stock.
- Gross profit. Sales − COGS. Divide by sales to get gross margin %.
- Expenses. Rent, staff salaries, electricity, internet, transport, packaging and similar running costs.
- Net profit. Gross profit − expenses. This is what the business actually earned.
A worked example
A general store's numbers for one month:
| Line | Amount |
|---|---|
| Sales (excluding GST) | ₹5,00,000 |
| Opening stock | ₹1,20,000 |
| + Purchases (excluding input GST) | ₹3,80,000 |
| − Closing stock | ₹1,30,000 |
| Cost of goods sold | ₹3,70,000 |
| Gross profit (26%) | ₹1,30,000 |
| Rent | ₹25,000 |
| Staff salaries | ₹40,000 |
| Electricity | ₹6,000 |
| Other expenses | ₹9,000 |
| Net profit (10%) | ₹50,000 |
If next month gross margin drops from 26% to 22% on the same sales, net profit falls by ₹20,000 even though the drawer may look just as full. That is the kind of change a P&L shows and cash counting misses.
Common mistakes when reading a P&L
- Counting GST as income. For regular taxpayers, output GST is not your money. Leaving it in sales inflates profit. See how the composition scheme differs.
- Ignoring closing stock. Buying heavily before Diwali raises purchases, but most of that stock is still on the shelf. Without the closing stock figure, profit looks far lower than it is.
- Mixing owner withdrawals with expenses. Money you take home is not a shop expense. Record it separately so the P&L shows the real performance of the business.
- Treating collections as sales. Recovering old credit brings cash, not new profit. Track it separately; our guide on recovering udhaar covers this.
- Looking only at the bottom line. Falling gross margin often points to supplier price rises, heavy discounting or dead stock being cleared at a loss.
P&L vs cash: why both matter
Profit tells you whether the shop is earning. Cash tells you whether you can pay tomorrow's bills. A profitable shop can still run short of cash if too much is stuck in stock or customer credit. Use the P&L monthly, and check cash daily with an end-of-day cash reconciliation.
How RichPOS builds your P&L
RichPOS includes more than twenty built-in reports, including profit & loss, stock valuation, expenses and GST on sales and purchases. They are generated from your live billing, purchase and stock data, not re-keyed by hand, and are export-ready for your CA. Accounts & cash tracks cash in and out, deposits and transfers alongside, and with users and roles a cashier can bill without seeing profit reports.
Frequently asked questions
- What is the difference between gross profit and net profit?
- Gross profit is sales minus the cost of the goods you sold. Net profit is what remains after you also subtract running expenses such as rent, salaries and electricity. A shop can have healthy gross profit and still make a loss if expenses are too high.
- Should GST be included in sales on a P&L?
- For a regular GST-registered shop, no. GST you collect belongs to the government and is passed on when you file returns, so sales on the P&L should be the taxable value excluding GST. Composition dealers pay tax from their own pocket, so for them it is a cost. Confirm treatment with your CA.
- Is cash in the drawer the same as profit?
- No. Cash can rise because a customer paid an old udhaar balance or fall because you paid a supplier in advance. Profit is about what you earned on sales in a period, while cash is about when money actually moved.
- How often should a shop check its P&L?
- Monthly is a good habit for most shops. It lets you spot rising costs or falling margins while there is still time to act, instead of finding out at year-end.
Bottom line: the drawer tells you about today; the P&L tells you whether the shop is really making money. RichPOS gives you GST billing with a live profit & loss report from ₹199/month, with a 30-day free trial. See pricing or call +91 90333 31255.
General guidance for Indian retailers as of 2026; confirm accounting and GST treatment for your business with your CA.
