Main benefits or advantages of profit and loss account can be expressed as follows:
1. Helps To Track Net Profit Or Net Loss
One of the major benefits of preparing profit and loss account is to track business performance in terms of net profit or net loss. Net profit or net loss for a certain period can be obtained by the help of profit and loss account.
2. Helps To Track Indirect Expenses
Indirect expenses of the business of a particular accounting period can be tracked and measured with the help of information provided in the profit and loss account.
3. Helps To Determine The Net Profit Ratio
Profit and loss account determines the net profit of the business for a particular period. So, it helps to obtain net profit ratio (ratio between net profit and sales). It can be determined by using the following formula:
Net Profit Ratio = Net Profit / Net Sales
4. Helps To Control Indirect Expenses
Profit and loss account provide data regarding different indirect expenses of the business firm. It helps to control and minimize excess expenses in order to improve the profitability of the firm.
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5. Helps In Decision Making
Profit and loss account provides detailed information about, net profit, net loss and indirect expenses of the business which helps to compare the current profitability position with the profitability position of the previous period. So, it helps to predict future performance , make plans and take better decisions.
