2.Profit and Loss Account (P&L A/c)

The Profit and Loss Account details the income earned by the company in a specified period for which a Balance Sheet has been prepared for both the beginning and end of the period. It also itemises the costs which have been incurred in achieving that income, analysing those costs into five main categories. These main categories are Materials, Direct Production Costs, Indirect Production Costs, Selling Costs and Administration Costs. The P & L A/c, in addition to showing the actual figures, includes the budgeted projections in order that comparison may be made with the plans made by the company at the beginning of the year.

The difference between the income and costs is the profit or loss which has been made in that period.

Examination of the variances by the managers will encourage the correct decisions to be made by them to arrest adverse trends and encourage positive trends in the operation of the company.