Final Account || Profit and Loss Account

Profit and Loss Account:

Profit and Loss account is prepared to ascertaining the net profit earned or net loss suffered by a business during an accounting period.

Profit and loss account is a statement which summarizes all indirect revenue expenses in one side which is compared with gross profit/revenue income in another side and net trading income of an accounting period is assessed.” - By S.Mukharjee

Objectives of preparing P/L Account

• To know the net profit and net loss made by the business during the particular period.
• To provide information about indirect expenses i.e. office and administrative, selling and distribution, financial expenses and other expenses and losses.
• To provide information about different sources of indirect income and gain.
• To provide information about the profitability of a business.

Preparation of P/L Account 

All the indirect expenses and losses are recorded in debit side and all the indirect incomes and gains are recorded in Credit side of P/L Account.

Items Recorded in Debit	Items Recorded in Credit Side
Gross Loss (if any) Office and administrative expenses. Selling and distributing expenses. Financial expenses. Depreciation, repair, and maintenance expenses. Other expenses and losses	Indirect Income : (discount received, commission received, bad debt recovered, rent received,  interest received, dividend received, appreciation of fixed assets, other receipts. Gross profit (if any)

Example1: The following information’s are provided to you of Himal Co. Ltd as on 31 Dec. 2017.

Particular	Amount	Particular	Amount
Salaries	18,000	Insurance Premium	8,000
Sundry expenses	4,000	Discount Received	4,000
Provision of bad debts	12,000	Commission paid	4,400
Bad debt	4,600	Rent received	2,000
Discount allowed	3,200	Advertisement	9,000
Gross profit	68,400	Depreciation	520

Solution:

Profit and Loss Account of Himal Co. Ltd Fo the year ending 31st Dec. 2017
Particular	Amount	Particular	Amount
To Salaries	18,000	By Gross profit b/d	68,400
To Insurance premium	8,000	By Discount received	4,000
To Sundry expenses	4,000	By Rent received	2,000
To Provision for bad debts	12,000
To Commission paid	4,400
To Bad debts	4,600
To Discount allowed	3,200
To Advertisement	9,000
To Depreciation	520
To Net Profit c/d	10,680
	74,400		74,400

Example1: Prepare Profit and Loss account of Hetauda Company Pvt. Ltd. For the fiscal year end of Ashadh 2067/068 according to the following transaction.

Particular	Amount	Particular	Amount
Gross profit	1,85,000	Salary	81,000
Profit in investment	11,000	Tax	7,000
Commission received	4,000	Interest paid	20,000
Advertisement	4,000	Interest paid	20,000

Solution:

Profit and Loss Account of Hetauda Company Pvt. Ltd. Fo the fiscal year end of 31st Ashadh. 2068
Particular	Amount	Particular	Amount
To Salary	81,000	By Gross profit b/d	1,85,000
To Tax	7,000	By profit in investment	11,000
To Interest paid	20,000	By Commission received	4,000
To Advertisement	15,000
To Audit Fees	10,00
To Net Profit	67,0000
	2,00,000		2,00,000

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