Meaning of Profit and Loss Account:- It is also a financial statement of business which shows profit or loss of business. It also leads to direction as it is running on profit or loss. However we can consider it from the format of profit and loss account.
It is a statement which reflects the Net Profit and Net Loss of Business. Its debit side includes Expenses and losses. Its Credit side Shows Other income beside production selling.
Note:- These include indirect type expenses and income.
FORMAT OF PROFIT AND LOSS ACCOUNT
Dr. Cr.
| Particular | ₹ | Particular | ₹ |
| To Gross Loss b/d | XXX | By Gross Profit b/d | XXX |
| Office and Administration Expense To Office Rent, Rates and Taxes To Office Heating, Cooling and Lighting To Office Salaries and Wages To Postage To Printing and Stationary To Office Buildings Insurance To Audit Fee To Telephone and Telex Expenses To Legal Expenses | XXX XXX XXX XXX XXX XXX XXX XXX XXX | By Interest ( Cr. ) By Discount ( Cr. ) By Commission (Cr.) By Rent ( Cr. ) By Interest and Dividend on Investments By Apprentice Premium By Difference in Exchanging ( Cr. ) By Provision for Discount on Creditors | XXX XXX XXX XXX XXX XXX XXX XXX |
| FINANCIAL EXPENSES To Discounts Allowed To Bank Charges To Interest on Loans To Interest on Capital | XXX XXX XXX XXX | By Profit on the Sale of Fixed Assets or Investments By Miscellaneous Receipts | XXX XXX |
| Repairs and Depreciation To Depreciation To Repairs | XXX XXX | ||
| Selling and Distribution Exp. To Advertisement To Travelling Exp. To Salaries and Commission To Bad Debts and Provisions To Godown Rent To Carriage and Freight on Sales To Export Duty and Expenses To Packing To Delivery Vehicles Expenses To Transit Insurance on Goods Sold | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | ||
| Losses and General Expenses To Loss on the Sale of Fixed Assets To Loss by Fire, Theft ( Not Covered by Insurance ) To Fines To Charity, Donation and Gifts To General Expenses To Trade Expenses To Employer’s Contribution Provident Fund and National Insurance | XXX XXX XXX XXX XXX XXX XXX | ||
| To Net Profit | #### | By Net Loss | #### |
Generally the following process is followed in a profit and loss Account.
DEBIT TO PROFIT AND LOSS ACCOUNT
( i ) Gross Loss of Trading account If Any.
( ii ) Establishment Expense:- Establishment Expenses like lighting, tax, rent and Rates etc. These expenses are relating to general staff and building. Salaries of staff insurance of buildings etc.
( iii ) Administration Expenses:- Like Salaries of administration Staff, Telephone, Audit fees etc.General Expenses printing Stationery. Telephone, legal charges, audit fees form part of administration expenses. format of profit and loss account
( iv ) Selling and Distribution Expenses:- like Packing, Commission on sales, Discount allowed and Advertising, rent of showroom, Travelling expenses, Salesmen’s Salaries etc. Expenses related to selling and delivery are involved. format of profit and loss account
( v ) Depreciation on Assets and Other Provision. Assets like Furniture, machines, patents and buildings are used in business. Depreciation is also an important part of expenses on these assets. Provision for bad debts on debtors and provision on discount on debtors are also debited to profit and loss accounts.
( vi ) Financial Expenses:- Like Intent on overdraft and Interest on loan. Expenses which arise on account of raising money and loans like interest on capital, Bank charges interest on overdraft are known as financial expenses. format of profit and loss account
( vii ) Abnormal Expenses:- Like Loss by theft, loss by fire etc. There may be a loss due to abnormal circumstances. Like destroyed by fire, loss on sale of fixed assets. These losses should be debited to a profit and loss account. format of profit and loss account
CREDIT TO PROFIT AND LOSS ACCOUNT
( i ) Gross Profit If any
( ii ) Other Incomes:- Other Income like discount Received, Interest received etc. Many incomes are here which may arise on the way of earning except sales. As Commission, interest, discount, rent received. There may be gain by selling fixed assets. So such types of income are credited to the profit and loss account.
( iii ) Profit on sale of fixed assets:- Any profit that is arised on the sale of fixed assets is added on the credit side of the profit and loss account. If any investment will be sold then profit arising on it will be treated as profit on fixed assets. It also will be credited to the profit and loss account. format of profit and loss account
You Must Read it before consider profit & loss
Trading account format
Conclusion :- From the above format we can understand with the help of its analysis of individual items of profit and loss account. Thus, the profit and loss account described Net profit and Net loss of Business.
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