The Profit and Loss (P&L) account is a document which shows the income of the business, as well as the costs which have been spent from the business during a given time-period (generally reviewed monthly, quarterly and annually). Inventory is included within the materials allocation.
This forms part of direct production costs, so therefore is allocated towards Cost of Sales within the example (i.e. overall direct production costs), and seen as an actual debit on the account.
It is critical that both the balance sheet and the profit and loss account are verified by an independent auditor to ensure that the valuation is accurate.
