How to Create a Profit and Loss Report in Xero
What Is the Quick Summary?
You can create a Profit and Loss report in Xero Accounting Software by selecting Reporting. All reports, including the opening Profit and Loss, require you to choose a date range and accounting basis, then click Update. Xero builds the report from your approved invoices, bills, and reconciled bank transactions.
This guide shows you how to prepare your data, run the report, read each section, customise it, and share it. It also explains how to fix the most common problems that distort profit figures.
Key takeaways:
- A Profit and Loss report shows income, costs, and net profit for a period.
- Clean data comes first: reconcile bank accounts and approve all invoices and bills.
- You can compare periods, filter by tracking category, and export the result in seconds.
What Is a Profit and Loss Report, and Why Does It Matter?
A Profit and Loss report, also called an income statement, summarises your income and expenses over a chosen period. It answers a simple question: did your business make money? Owners use it to guide pricing and spending, accountants use it to prepare tax returns, and lenders use it to judge your ability to repay a loan.
Xero Accounting Software generates the report directly from your ledger. Therefore, you never need to retype figures into a spreadsheet, and the report updates as soon as you record new transactions.
How Does a Profit and Loss Report Differ From a Balance Sheet?
The two reports show different things. The table below highlights the main contrasts.
| Feature | Profit and Loss | Balance Sheet |
|---|---|---|
| Time frame | A period, such as a month or a year | A single date |
| Main question | Did we earn a profit? | What do we own and owe? |
| Key items | Income, costs, expenses, net profit | Assets, liabilities, equity |
| Typical use | Performance review and tax | Financial position and lending |
Who Should Run This Report?
Business owners, bookkeepers, accountants, and finance managers all run it. Access depends on your user role in Xero. If you cannot see the report, ask your administrator to check your permissions under Settings, then Users.
What Should You Prepare Before You Create the Report?
The report is only as accurate as the data behind it. A few quick checks prevent most problems.
Which Data Checks Should You Complete?
- Reconcile your bank accounts up to the end of the reporting period.
- Approve all draft invoices and bills that belong in the period.
- Record all payments and allocate credit notes.
- Review manual journals for depreciation, accruals, and corrections.
- Check account codes on recent transactions to avoid miscoding.
Is Your Chart of Accounts Set Up Properly?
The report groups figures by your chart of accounts. If you coded a rent payment to “Office Supplies,” the report will show the wrong expense line. Open Accounting, then Chart of Accounts, and review the list. Archive unused accounts and add missing ones before you run the report. Clear account names also make the report easier to read.
Should You Set a Lock Date First?
A lock date prevents users from changing transactions in a closed period. Set it after you finish a month or year so later edits don’t alter figures you have already reported. You can manage lock dates under Settings, then Financial settings. Advisers can override the lock if necessary.
How Do You Create a Profit and Loss Report in Xero?
The process takes just a few steps. Xero Accounting Software keeps the controls in the same place for every report.
What Are the Step-by-Step Instructions?
- Select Reporting from the main menu.
- Choose All reports.
- Under Financial Statements, click Profit and Loss.
- Set the Date range to the period you want, such as the previous month.
- Select a Compare with option if you want to see earlier periods.
- Choose the Accounting basis, either Accrual or Cash.
- Add filters, such as a tracking category, if needed.
- Click Update.
Because Xero refreshes the report only when you click Update, always confirm your settings before you rely on the figures.
How Do You Choose Between Accrual and Cash Basis?
Accrual reporting records income when you issue an invoice and expenses when you receive a bill. Cash reporting records them when money moves. Accrual gives a more accurate picture of performance, while cash suits some small businesses and certain tax rules. Confirm the right choice with your accountant, because the basis can change your profit figure.
How Do You Pick a Useful Date Range?
Match the range to your question. Use a calendar month for routine reviews, a quarter for tax planning, and a full financial year for annual accounts. For trend analysis, compare several periods side by side so seasonal patterns stand out.
How Do You Read Each Section of the Report?
Once the report loads, you will see several sections. Understanding each one helps you spot problems and opportunities.
What Do the Main Sections Mean?
| Section | What it shows |
|---|---|
| Trading income | Revenue from selling products or services |
| Cost of sales | Direct costs tied to what you sell, such as materials |
| Gross profit | Trading income minus cost of sales |
| Operating expenses | Overheads such as rent, wages, insurance, and software |
| Net profit | Gross profit minus operating expenses |
How Do You Calculate Profit Margins?
You can turn the numbers into ratios for deeper insight:
- Gross profit margin equals gross profit divided by trading income, multiplied by 100.
- Net profit margin equals net profit divided by trading income, multiplied by 100.
For example, if your trading income is 100,000 and your net profit is 12,000, your net margin is 12 per cent. Track these ratios over time to see whether your business becomes more or less efficient.
How Do You Drill Down Into a Figure?
Click any amount on the report to open the underlying transactions. This feature helps you quickly verify a surprising number. If you find a miscoded transaction, open it, correct the account code, and rerun the report.
How Do You Compare Periods and Track Trends?
A single month of data rarely tells the full story. Comparison turns the report into a decision tool.
How Do You Add Comparison Columns?
Use the Compare with option to add previous months, quarters, or years. Xero shows each period in its own column, and many views also display the percentage change. As a result, you can spot growth, decline, and unusual spikes at a glance.
How Do You Compare Actuals With a Budget?
If you have created a budget in Xero, you can compare your actual results with your plan. Open Budget Manager to create or update a budget, then use the budget comparison options in your report tools. This comparison shows where you overspent and where you saved money.
Which Trends Deserve Your Attention?
- Income that falls while expenses rise
- A gross margin that shrinks over several months
- A single expense category that grows faster than sales
- Seasonal swings that you can plan for in advance
How Do You Customise the Profit and Loss Report?
Standard layouts work for many businesses, yet you may need a tailored view. Xero Accounting Software offers several customisation options.
How Do You Filter by Tracking Category?
Tracking categories let you split results by department, project, region, or product line. Set them up under Settings, then Tracking categories. After you tag transactions, you can run the report for a single category or compare categories side by side. This approach reveals which parts of your business earn the most.
How Do You Save a Custom Layout?
Many Xero plans let you edit the report layout, such as hiding rows, grouping accounts, and adding notes. After you adjust the layout, save it to your Custom reports list so you can run it again without rebuilding it. Options vary by plan and region, so check which features your organisation includes.
Which Customisation Options Save the Most Time?
- Grouping similar expenses into one line for board reports
- Hiding zero-value rows to keep the report short
- Adding notes that explain unusual items
- Saving a monthly layout for repeat use
How Do You Export and Share the Report?
A report helps only when the right people see it. Fortunately, you can share it in several ways.
How Do You Export to PDF, Excel, or Google Sheets?
After you run the report, select Export and choose a format. PDF suits lenders and investors because it fixes the layout. Excel and Google Sheets suit further analysis. Always check the date range and filters before you export, because the file reflects the exact settings on screen.
How Do You Share the Report With Your Accountant?
You can email the exported file, or invite your accountant as an adviser user so they can see live data. The second method reduces back-and-forth and ensures they always view the latest figures.
How Do You Fix Common Profit and Loss Problems?
Sometimes the report looks wrong. Most issues have simple causes.
Why Does the Net Profit Look Too High or Too Low?
| Symptom | Likely cause | Fix |
|---|---|---|
| Profit looks too high | Missing bills or unrecorded expenses | Enter and approve all bills for the period |
| Profit looks too low | Income recorded in the wrong period or left in draft | Approve invoices and check dates |
| Expense appears under the wrong line | Miscoded transaction | Edit the account code |
| Figures differ from last month’s report | Edits to a closed period | Use lock dates and review history |
| Report differs from bank balance | Normal: the report shows income and expenses, not cash | Check the Balance Sheet and cash reports |
What Should You Do About Missing Depreciation or Accruals?
Xero does not always record depreciation or accruals automatically. Ask your accountant to post manual journals for items such as depreciation, prepaid expenses, and accrued costs. Without them, your profit may look better or worse than reality.
How Do You Avoid Repeating the Same Errors?
- Reconcile weekly so that bank lines never pile up.
- Use bank rules to code recurring transactions consistently.
- Review the report monthly and investigate unusual changes.
- Set a lock date after each closed period.
- Limit who can edit the chart of accounts.
What Should You Remember About Creating a Profit and Loss Report in Xero?
Creating a Profit and Loss report in Xero takes only a few clicks: open Reporting, select Profit and Loss, set the date range and basis, and click Update. Prepare your data first by reconciling accounts and approving transactions, then read each section carefully, compare periods, and drill into any figure that surprises you.
Once you master these steps, Xero Accounting Software gives you a fast, reliable view of your profitability and helps you make better decisions. Ask your accountant for help with adjustments such as depreciation, and consult Xero Central for the latest official instructions.
Frequently Asked Questions
Select Reporting from the main menu, choose All reports, and open Profit and Loss under Financial Statements. You can also search for the report by name if you do not see it immediately.
Yes. Change the date range to the start and end of the year you want, then click Update. To see how that year compares with another, use the Compare with option.
The report shows income and expenses, not cash. Unpaid invoices and bills appear on the accrual basis even though no money has moved. Check the Balance Sheet and the Statement of Cash Flows to see your cash position.
