A P&L is a decision-making tool. If the numbers feeding it are wrong, every decision downstream — pricing, hiring, whether you can afford that new lease — is wrong too. Here are the five distortions we find most often when we take over a set of books, and what each one does to your numbers.
1. Loan payments booked as expenses
When you pay $2,000/month on a business loan, only the interest belongs on the P&L. The principal is a balance-sheet transaction — it reduces the loan liability. Book the whole payment as an expense and you understate profit by the principal amount, which on a typical SBA payment schedule can be $15,000–$20,000 a year. The tax return then contradicts your books, and a lender comparing the two will notice.
2. Owner draws treated as payroll or expenses
In a sole proprietorship or partnership, money you take out is a draw against equity — not an expense, not a salary. Booked as an expense, it makes a genuinely profitable business look like it's breaking even. We've seen owners forgo raises, delay hires, and even seek financing over a "loss" that was really $60,000 of their own draws miscategorized.
3. COGS and operating expenses mixed together
Cost of goods sold — materials, direct labor, freight-in, merchant fees on product sales — should sit above the gross profit line. When product costs leak into general expense accounts, your gross margin looks better than it is, and you can't answer the most basic question in business: what does it actually cost to deliver what I sell? A retailer showing a 78% gross margin almost certainly has COGS hiding in "Supplies."
4. Refunds and processor fees netted into revenue
Stripe and Shopify deposit net amounts: sales minus refunds minus fees. If your bookkeeper records the deposit as revenue, your top line is understated and your processing fees (often 2.5–3% of gross — a real, deductible expense) vanish entirely. Gross revenue, refunds, and fees should each have their own line. This alone can move reported revenue 5–8% on an e-commerce P&L.
5. The "Miscellaneous" dumping ground
Any account holding more than 1–2% of total expenses is hiding something. Uncategorized transactions get parked there during a rushed close and never revisited. At tax time, your CPA either spends billable hours digging through it or — worse — writes it off as non-deductible to be safe.
The fix: a real monthly close
- Reconcile every bank and credit card account to the statement — every month, no exceptions.
- Zero out uncategorized and suspense accounts before closing the month.
- Review the P&L against last month and the same month last year; investigate any line that moved more than 15% without an obvious reason.
- Confirm loan balances on the balance sheet match lender statements.
- Lock the closed period so prior months stop shifting under you.
Do this and your P&L stops being a document you glance at during tax season and becomes what it should be: the instrument panel you run the business from.