P & L Accounts and its Format

What Profit & Loss Account why and How it is prepared?

What is Profit and Loss Accounts ?

Profit and Loss Account is a type of financial statement which shows the result of business activities during an accounting period (i.e. Profit or loss).

It directly related and considers reported income and expenses to an organization measuring the performance in terms of profit & loss.

Trading Accounts only reveal the gross profit earned because of buying and selling of goods .

However, a business owner has to carried out number of expenses which are not taken trading account.Hence, organization is more interested in knowing the net profit earned or loss incurred during a year.

A profit-and-loss account is prepared, which comprises all the items of losses and gain relating to the accounting period .

Why to prepare Profit and Loss Accounts

It  determines the Net Profit or Net Loss ;

A trading account only revealed the Gross Profit or Gross Loss because of trading activities, whereas the profit-and-loss accounts revealed the net profit or ne loss available to the proprietors and credited to his capital accounts. if profit or debited to his capital if loss .

It helps to analyze with the preceding year’s Profit.

We can compare the net profit of the present year with that of the previous year .It facilitates the organisation to know whether the business is being managed effectively

It facilitates to control of expenses :

Profit and loss accounts help to compare various expenses with the expenses to net profit .It calculates and compared with the similar ratio of the previous year .Such relation will be helpful in taking concrete steps for managing the unnecessary expense.

It helps in preparing balance sheet .

We can only prepare a balance sheet after ascertaining the Net Profit on preparing profit-and-loss account.

 

Format of a Profit and Loss Account

Profit and Loss Account for the year ending ……………..

Particular

Amount

Particular

Amount

To Gross Loss b/d

(Transfer from Trading

(account)

Xxxx

By Gross Profit b/d

(Transfer from Trading

(account)

Xxx

Office expense

 

 

By Rent from Tenant

Xxxx

To salary

xxx

BY rent (Cr.)

Xxx

To salary and Wages

Xxx

By discount received

Xxx

To rent rates and taxes

Xxx

By discount (Cr.)

Xxx

To printing and stationary

Xxx

By commission received

Xxx

To postage and telegram

Xxx

By interest on Investment

Xxx

To lighting

Xxx

BY Dividend on shares

Xxx

To insurance premium

Xxx

By bad debts recovered

xxx

To telephone charges

Xxx

By apprentice premium

Xxx

To legal Charges

Xxx

By profit on sale of assets

Xxx

To lighting

Xxx

By dividend on shares

Xxx

To insurance premium

Xxx

By bad debts recovered

Xxx

To Audit fees

Xxx

BY apprentice premium

xxx

To travelling expenses

Xxx

By profit and sale of assets

Xxx

To establishment  Expense

Xxx

By income and other source

Xxx

To trade expense

Xxx

By miscellaneous receipts

Xxx

To general expense

Xxx

By loss (if any)

Transfer to capital a/c

xxx

Selling and distribution Expense

Xxx

 

 

To carriage outward

Xxx

 

 

To carriage sale

Xx

 

 

To advertisement

Xxx

 

 

To commission

Xxx

 

 

To brokerage

Xx

 

 

To bad debts

Xxx

 

 

To export duty

Xxx

 

 

To  Packing charges

Xx

 

 

To delivery charges

Xx

 

 

To stable expense

Xxx

 

 

Miscellaneous expense

 

 

 

To discount

Xxx

 

 

To repairs

Xxx

 

 

To depreciation

Xxx

 

 

To interest (Dr.)

Xxx

 

 

To bank charges

Xxx

 

 

To entertainment expenses

Xxx

 

 

To conveyance expense

Xxx

 

 

To donation and charity

Xxx

 

 

To loss on sale of Assets

Xxx

 

 

To net profit

(transfer to capital a/c)

 

 

 

 

xxxx

 

xxxxx

How to prepare Profit and loss accounts

A profit-and-loss account opened with the amount of gross profit or loss carried down from the trading account.

After ,preparation of trading account, all expenses and losses which are not debited in trading account are now written in Profit and loss accounts .These expenses include administrative expense, selling expense and distribution expense.

Similiary All income not credited in trading account are now credited to profit-and-loss accounts.

We call these indirect expenses.

Expenses or Loss which are written on Debit side of Profit and Loss accounts.

  1. Gross Loss: If trading accounts reveal Gross Loss.The Gross Loss is recorded on Debit side of Profit and loss accounts.
  2. Office and administrative expense : Such as salary of office employees office rent ,lighting ,postage ,printing ,legal charges audit fee etc. 
  3. Miscellaneous expense : These expense includes such as interest on loan ,,interest on capital, repair charges ,depreciation etc.
  4. Selling and  distribution expense : Such as advertising charges , commission ,carriage on sales or carriage outward, etc.

Income or gain written on credit side of Profit and Loss Accounts.

  1. Gross Profit : If trading accounts reveal Gross profit, it is to be transferred to Credit side of Profit and loss accounts.
  2. Other incomes and Gains : All items of incomes and gain are shown on the credit side of profit and loss accounts such as income from shares or investment , Bad debts recover, rent , divident received ,commission received , discount allowed, etc.
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