Profit and Loss vs. Balance Sheet (Differences + Examples)
- Use a Profit and Loss Statement when evaluating whether your business is profitable, where expenses can be trimmed, or to prepare for tax filing.
- Use a Balance Sheet when applying for loans, gauging your company's stability, or assessing your ability to pay off debts.
- Revenue (Sales): This is the total income from product sales, including Shopify sales, marketplace orders, and any other channels.
- Cost of Goods Sold (COGS): What you paid to produce or purchase the products you sold—including dropshipping supplier costs, packaging, and shipping fees.
- Operating Expenses: These cover everything from marketing (Facebook Ads, influencers), subscription tools (Shopify apps, email platforms), to salaries and fulfillment services.
- Net Profit (or Loss): What’s left after all expenses—this is the number that shows if your business is financially healthy.
- Track real-time performance – See if your recent campaigns or product launches are actually profitable.
- Set smarter budgets – Know exactly how much you can spend on ads, tools, or new hires without going negative.
- Make tax time easier – A well-organized P&L makes it easier to file taxes and claim accurate deductions.
- Optimize margins – Identify hidden costs and find where you’re leaking money like overspending on ad platforms or poor SKU performance.
- Assets include your inventory, cash in the bank, equipment (like computers or photography gear), and accounts receivable (unpaid customer invoices). For dropshippers, this may lean more toward digital assets or receivables.
- Liabilities cover outstanding supplier payments, loans, credit card debts, or any other money the business owes.
- Owner’s Equity reflects how much the business is truly worth to the owner after paying off all debts. It's essentially your stake in the business.
- $10,000 in cash
- $5,000 in inventory
- $3,000 in outstanding customer payments (accounts receivable)
- $6,000 in credit card debt
- $2,000 loan balance
- Gauge your ability to scale – If you’re looking to invest in ads, new SKUs, or team members, your balance sheet will show whether you can afford it.
- Secure funding – Lenders and investors often look at your balance sheet to assess if your business is stable enough to support additional investment.
- Track business health over time – By comparing balance sheets from different periods, you can spot trends in growth, cash flow, and liabilities.
- TrueProfit – Automatically tracks your profit and loss in real-time, including store profit, ad spend, product costs, and more.
- Excel or Google Sheets – Good for beginners but very prone to errors.
Founder of TrueProfit & eCommerce Profitability Expert
Harry Chu is the Founder of TrueProfit, a net profit tracking solution designed to help Shopify merchants gain real-time insights into their actual profits. With 11+ years of experience in eCommerce and technology, his expertise in profit analytics, cost tracking, and data-driven decision-making has made him a trusted voice for thousands of Shopify merchants.
Harry Chu is the Founder of TrueProfit, a net profit tracking solution designed to help Shopify merchants gain real-time insights into their actual profits. With 11+ years of experience in eCommerce and technology, his expertise in profit analytics, cost tracking, and data-driven decision-making has made him a trusted voice for thousands of Shopify merchants.
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