What is Profit & Loss Account?
The account through which the annual net profit or loss of a business is ascertained is called P&L A/c.It is prepared to determine the net profit or net loss of a trader. P&L account is a component of Final Accounts.
The profit & loss account has the following features:-
It is the second stage of the final accounts.
It shows the net results (net profit or net loss) of the business.
All expenses connected with sales and administration (indirect expenses) of business are considered.
It always starts with the balance of a trading account (gross profit or gross loss).
Its balance (N.P or N.L) is transferred to capital account in balance sheet.
purpose of preparing the profit and loss account
- The purpose of preparing the profit and loss account is to ascertain the net income (performance result) of the enterprise for the year/period, which is the most significant information to be reported for decision making.
- Net income or net profit is calculated by charging all operating expenses and by considering other incomes earned in the form of commission, interest, rent, discount, fees, etc.
FORMATE OF PROFIT & LOSS ACCOUNT
Examples of Indirect expenses include:-
Rent of building
Salaries to employees
Insurance of Building
Printing charges etc.
carriage on sales
loss on sale of assets
miscellaneous expense, rent
Depreciation and amortization
Research and development
Advertisement Audit fees
Insurance Interest on capital Interest
Legal charges & law fess
Office lighting Packing expenses
Postage & telegram Provision
Rent Repair & renewals
Salary Stable expenses
Examples of Indirect Income include
Membership fee receive
Incentive receive etc