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Profit and Loss Account

According to Prof. Carter: 

‘A Profit and Loss Account is an account into which all gains and losses are collected, in order to ascertain the excess of gains over the losses or vice-versa’.

Why Profit and loss account is made?

  • To find out the Net Profit or Net Loss
  • Compare the net profit of the business with previous years and to assess the performance of the business.
  • Find out the amount of overheads of a business.

Items appearing on a Profit and Loss account

Any Incomes or gains

Any income or gains of the business from sources other than sales are recorded on the Credit side of Profit and loss account.

Gross Profit or Loss

It is transferred to the P/L account from the Trading Account. Gross Profit is transferred to the Debit side whereas Gross Loss is transferred to the Credit side.

Office and Administrative expenses

Example include salaries, office rent, lighting, stationery etc.

Selling and Distribution expenses

Include advertising expense, commission, carriage outwards, bad-debts etc.

Miscellaneous expenses

Such as, interest on loan, interest on capital, depreciation etc.

For Closing Entries related to Profit and Loss Account Click here. pdf

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