Why did expenses go up this month? Explaining P&L variances from the ledger

A percentage is not an explanation

"Office expenses are up 38% on last month" tells you where to look. It does not tell you why. The owner who reads the monthly report wants the second half of the sentence: up because the annual software licence renewed, because a printer was bought, or because a supplier bill was posted to the wrong account.

Good variance commentary always ends at specific posted entries. If you cannot name the bills, invoices or journals that produced a movement, you have not explained it yet. You have only measured it.

Pick the right comparison

Most small businesses compare a month with one of two periods, and each answers a different question.

• Previous month shows the trend and catches errors quickly. It is noisy for seasonal businesses: a retailer's January will always look weak against December.
• Same month last year removes most seasonality, so it suits businesses with strong seasonal patterns, such as trade around holidays or the school year. It is less useful in the first year of operation or after a major change in the business.

Use one as your default and switch when the question demands it. If utilities are up against last month, check the same month last year before concluding anything; winter heating or summer cooling may explain the whole change.

Decide what counts as material

If you try to explain every movement, you will explain none of them well. Set a materiality rule and apply it consistently. A practical rule uses both a percentage and an absolute amount:

• A percentage alone flags tiny accounts. Bank charges moving from 5 to 15 are up 200% and do not matter.
• An amount alone misses proportion. A 2% movement in cost of sales can be large in money and perfectly normal.

Requiring a movement to pass both tests, for example at least 10% and at least a set amount in your own currency, keeps the list short. Treat an account that had no activity in the comparison period as material on the amount test alone, because a brand-new line of expense always deserves a question.

Trace both months, not just the current one

A common mistake is to explain a movement only by looking at the current month's entries. That works for increases. It fails for decreases.

Suppose insurance expense fell sharply this month. Nothing in this month's entries explains a fall; the explanation is that last month contained the annual premium. A sound method looks at both sides: entries in the current month add to the change, entries in the comparison month subtract from it. Rank them by how much each contributes, and the top few usually account for most of the movement.

Work at the level of the posted entry, such as the bill, invoice or journal, summed across its lines. Use posted figures only. Drafts and voided documents are not in the profit and loss, so they cannot explain it.

The usual causes, and what to do about each

• Timing. A quarterly or annual bill lands in one month. Accept it, or spread it with a prepayment.
• Missing accrual. An expense is absent this month and doubled next month. Accrue it in the month it belongs to.
• Misclassification. An asset purchase sits in an expense account. Reclassify it with a correcting journal.
• Duplicate entry. The same supplier bill appears twice. Void or reverse the duplicate.
• One-off event. A repair, legal fee or bad debt. Explain it and keep it out of trend analysis.
• Real change. Prices, volumes or headcount moved. Report it; this is the information owners need.

The first four are bookkeeping issues and should be fixed before the month is closed. The last two are business information and belong in the commentary.

Write the commentary in one sentence per line

A consistent sentence pattern makes commentary quick to write and easy to read:

[Account] [up/down] [percentage] against [period] ([amount]): mainly [entry] and [entry]. [Cause and any action taken.]

For example: "Repairs up 64% against last month: mainly the compressor repair bill from the service contractor. One-off; no action needed." Keep a link from each sentence to the entries, so the reader can check the evidence without asking you.

How NAQIX explains variances

NAQIX includes a Material P&L movements panel in the Finance Control Centre. Choose a month and compare it with the previous month or the same month last year. Every income and expense account is compared, and lines that move by at least 10% and at least 100 in your company currency are listed; a line that is new this period needs only the amount.

• Each listed line names the posted entries behind the change, ranked by contribution, with up to five shown and a link to the general ledger for the rest.
• Entries from both months are considered, so a decrease is explained by what the comparison month contained.
• Each entry links to the journal, and each account links to its general ledger for the month.
• The wording is generated from the ledger figures by fixed rules rather than written by an AI model, so every number in the sentence comes from posted journals.

The panel is read-only and uses the same posted figures as the profit and loss. It is part of the review workspace described on the AI Accountant page, alongside the month-end checklist on the Accounting & reports page. Reading variances before a second person signs off the month is a natural fit.

Make it a habit, not a project

Variance review takes minutes once the method is fixed: same comparison, same threshold, same sentence pattern, every month. Do it before you close, fix what turns out to be bookkeeping, and send the owner only what turns out to be business. That is the difference between a report that lists numbers and one that answers questions.