Profit and Loss Account Part 3

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It is a statement prepared by every business concern to know whether the business is earing profits or incurring losses. Profit and Loss account states either Net profit or Net loss for a particular period of time.

Trading account only consider direct expenses and direct income i.e. sales. Profit and Loss account consider all indirect expenses and indirect incomes which were taken place during the accounting year.

Image of Image of Trading profit and loss account format

Image of Image of Trading Profit and Loss Account Format

Image of Image of Trading profit and loss account format

Need of Preparing Profit and Loss Account:

  • To know the Net profit or Net loss of the business concern

  • To ascertain whether business is operating effectively or not by comparing the current results with historical (previous years) results.

  • To ascertain the increase or decrease in expenses. Basing on that we can control over expenses.

Format of Profit and Loss Account:

Profit and Loss Account of M/s ……... for the year ending ……………

Dr. Cr.

Table of Format of Profit and Loss Account: Profit and Loss Account of M/S ……... For the Year Ending
Title: Table of Format of Profit and Loss Account: Profit and Loss Account of M/s ……... for the year ending

Particulars

Amount (Rs.)

Particulars

Amount (Rs.)

Gross loss b/d

Salaries

Rent, Rates & Taxes

Insurance Premium

Advertising

Commission Paid

Discount Allowed

Repairs and Renewals

Bad Debts

Establishment Charges

Travelling Expenses

Bank Charges

Depreciation on fixed assets

Net Profit transferred to Capital A/c

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

Gross profit b/d

Discount Received

Commission Received

Dividend Received

Interest on Investment

Rent Received

Net loss transferred to Capital A/c

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

×××××××

Important Items of Profit and Loss Account:

Debit items:

  1. Selling and Distribution Expenses: Expenses incurred to materialize sales. Ex: Advertisement expenses, Sales men commission, Salary of the driver of delivery van, transport expenses etc.

  2. Office and Administration Expenses: Expenses incurred during establishment of office and for the maintenance of the office. Ex: Salaries of Administration staff, Rent paid, stationary, posting and printing charges, audit fees, legal charges etc.

  3. Financial Expenses: Expenses incurred to raise the financial funds. Ex: Interest on loan, interest on capital, discount on bills etc.

  4. Depreciation and Maintenance Charges: Every fixed asset losses its value as time goes on. Decline in the value of a fixed asset due to wear, tear or obsolescence is called Depreciation. That kind of loss is considered as expense over a period of years. Expenses incurred on repairs and renewals called maintenance charges.

  5. Other Expenses: Expenses due to fire, theft etc.

Credit items: These are the indirect sources for the business enterprise. Ex: Interest on investments, Rent Received, Commission received and Lottery received etc.

Net Profit or Net Loss:

Net Profit: Total of Debit side > Total of Credit Side

Net Loss: Total of Debit side < Total of Credit side

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