Profit and loss Account

 

Profit and loss Account:

     Trading Account is prepared to ascertain the gross profit or gross loss made by the trader for any given period.

  The next step in the preparation of financial Accounts is to prepare a profit and loss Account. The main object of the profit and loss Account is to know the net profit or net loss made by the business for a particular period.

   The Trading Account is closed by transferring the gross profit or gross loss to the profit and loss Account. Therefore the profit and loss Account starts with gross profit on the Credit side or with gross loss on the debit side as the case may be.

    The profit and loss Account is credited with the gains and incomes whether actually received or yet to be received relating to the business and belonging to the period such as discount received, commision received, intrest received, rent received etc.

    It is debited with all expenses ( whether paid or yet to be paid) incidental to carry on the business such as office salaries, printing and stationery, postage, advertising, insurance etc. All nominal Accounts balances with the in exception of those in the Trading Account should be transferred to profit and loss account. Thus, the net profit is the surplus remaining after charging against gross profit, all the expenses, including depreciation and other provisions properly attributable to the normal activities of the particular business. 

 The following are usual expenses that are charged to profit and loss account namely.

 (a) Administration expenses ( also called as office Expenses or management expenses)

(b) selling and Distribution expenses.

(c) Financial in expenses

(d) Maintenance and depreciation expenses.