Purposes and Importance of P & L A/c

Before detailing the contents of the P & L A/c, it is worthwhile to look at the purposes and importance of P & L A/c. 

The purposes of P & L A/c are as follows : 

1. Providing information about net profit. 
2. Enabling P & L A/c of successive years to be compared. 
3. Provoking for steps to be taken to improve net profit in future through analysis of expenses. 
4. Initiating the process of allocation of net profits among partners and for reserves and contingencies and also for R & D programmes towards going for new product lines and to improve present lines of business. 

Through well-informed deliberations in respect of these purposes, effective control of expenses, improving the net profit ratio, reducing the expenses ratio, optimal allocation of the net profit towards future contingencies and reserves and R & D activities, decisions on future lines of action, identification of weaknesses and working towards their removal can be attended to.