PROFIT & LOSS ACCOUNT - Accounts and Finance for Managers

It is a second statement of accounting in connection with the earlier to determine the Net profit/loss of the enterprise out of the early found Gross profit/loss. This is an accounting statement matches the administrative, selling and distribution expenses with the gross profit and other incomes of the enterprise.

This is an account prepared for one operating cycle of the firm i.e. 12 months in period. The transactions are recorded in accordance with golden rules of nominal account. In the profit & loss account, the expenses and losses are debited and incomes and gains are credited. The reason for bringing down the gross loss /gross profit of the trading account into the debit and credit side of Profit & Loss A/c respectively, are only to the tune of nominal accounting ruling with reference to debit all expenses and losses and credit all incomes and gains.

The expenses which are matched with the credit total of the profit and loss account. Classified into various categories

  • Administrative Expenses
  • Selling & Distribution Expenses
  • Financial Expenses
  • Legal Expense

PROFIT & LOSS ACCOUNT

The balancing process of the profit and loss account leads to two different categories

Net profit is the resultant of excess of income in the credit side over the expenses in the debit side of the Profit and Loss account
Net Loss is an outcome of excess of expenses in the debit side over the incomes in the credit side

Illustration 4

From the following information, Prepare the Profit and Loss account

PROFIT

Final account

PROFIT & LOSS ACCOUNT

Net loss is the excess of the expenses total in the debit side Rs. 24, 500 over the incomes total in the credit side of the profit and loss account.


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