Overall Control Through Profit and Loss Control

A profit and loss statement will show the constituent parts of a profit or loss for a given period and therefore it is useful for determining the immediate revenue or cost factors that have accounted for the success or failure.

It also gives a manager a chance, before the event, to influence revenues, expenses and therefore profits so it is a good control device.Many companies use the profit and loss statement for divisional controls since business survival usually depends on profits so they form a good standard against which to measure success. Each division details its expenses and revenues and provides periodically a statement of its profits and loss.


Profit and loss control is therefore only practical for major divisions of a company especially if the divisions are product or territorial where both sales and production functions are under one jurisdiction. It is also occasionally used for functional departments but rarely applied to central staff and service departments.

Control through profit and loss has various limitations:

(a)    It can be too costly—there is too much paperwork, duplication of accounting records and time and effort required to calculate intracompany sales.

(b)    It would be inadequate to measure overall performance completely especially when top managers are unwilling to delegate.

(c)    Departments may come to compete with an aggressive detachment (individuality) which may hinder enterprise coordination.