Profit and Loss Account Financial Management and Cost Accounting (DBM-422) - PowerPoint Presentation

1. Profit and Loss AccountFinancial Management and Cost Accounting (DBM-422)A K JHA

2. Profit and Loss AccountIt is an account prepared to ascertain the net profit or net loss made by a concern during an accounting period. Profit and Loss Account is prepared to estimate the net profit or net loss of the business for a given accounting period.It is prepared after preparing the trading Account.

3. The Profit and Loss Account starts with the credit from the Trading Account in respect of gross profit or debit if there is gross loss.Then all indirect expenses and losses are debited to the Profit and Loss Account.It means that all those expenses or incomes which have not been debited or credited to the Trading Account are debited or credited in the Profit and Loss Account.Indirect expenses include all administrative, selling and distribution expenses like salaries, rent and taxes, postage, and stationery, insurance, depreciation, interest paid, office lighting, advertising, packing, carriage outwards, etc.Losses include items like loss by fire, loss by theft, etc.

4. If there is any income and gain beside the gross profit, it will also be transferred to the credit of the Profit and Loss Account.If the total of the credit side exceeds the total of the debit side, the difference represent the net profit. In adverse situation, the difference will represent the net loss.This net profit or net loss is transferred to the capital account of the proprietor.The net profit increases the capital or nt loss reduces the capital.

5. Format of Profit and Loss Account ParticularsAmount(Rs.)ParticularsAmount(Rs.)To Gross loss transferred from Trading a/cBy Gross Profit transferred from Trading a/cTo management expenses:By interest receivedsalariesBy discount receivedrent, rates and taxesBy commission receivedstationery and printing chargesBy Income form investmentsTelephone expensesBy apprenticeship premiumlegal charges and law costsBy rententertainment expensesBy miscellaneous incomeInsurance premiumBy net loss transferred to capital accountgeneral expensesAudit feesDr.Cr.

6. Format of Profit and Loss Account contd.. ParticularsAmount(Rs.)ParticularsAmount(Rs.)To selling expenses :Advertisingsalesmen salariesSelling commissionBrokeragetravelling expensesFree samplesBad debtsTo Distribution expenseswarehouse rentcarriage outwardwarehouse insurancePacking expensesDelivery van expenses

7. Format of Profit and Loss Account ParticularsAmount(Rs.)ParticularsAmount(Rs.)To Depreciation :Maintenance expensesDepreciation of assetsTo Finance expenses:Discount on billsDiscount allowedInterest on capitalInterest on loansLoss by fireTo net profit transferred to capital account

8. Advantages of Profit and Loss AccountThe net result –profit or loss , revealed by this account is an index by which progress can be measured.Various expenses can be effectively controlled by comparing various expenses, year by year.Profitability is the basis and helps in planning of action.

9. Difference between Trading and Profit and Loss AccountTrading AccountProfit and Loss AccountThe first section of revenue account is trading account.It is prepared to know only the result of trading.It deals with purchasing and manufacturing costs of goods.Balance of this account is transferred to profit and loss account.The second section of revenue account is known as the profit and loss account.It is prepared to know the ultimate result of the business.It deals with administration, selling, distribution expenses etc.Balance of this account is transferred to capital account.