Before Analysing Monthly Profit, Ask Whether The Underlying Figures Are Complete And Recorded In The Correct Period.
A Profit and Loss statement may look complete while timing differences distort the reported result.
Examples include:
- Revenue recorded before delivery or completion
- Supplier invoices entered after the reporting month
- Direct costs recorded separately from the related revenue
- Salaries, utilities and other unpaid expenses not accrued
- Inventory movements or adjustments omitted
- Returns and credit notes processed late
These issues can overstate one month’s performance and understate another.
A disciplined month-end review should confirm that:
- Revenue belongs to the reporting period
- Related costs have been captured
- Material unpaid expenses are accrued
- Inventory records are updated
- Bank and control accounts are reconciled
- Unusual movements are investigated
Management cannot make sound comparisons if the accounting cut-off changes from month to month.
First verify the figures. Then analyse the performance.