{"id":132,"date":"2018-10-11T06:30:16","date_gmt":"2018-10-11T06:30:16","guid":{"rendered":"http:\/\/mgmtp02.epgpbooks.inflibnet.ac.in\/?post_type=chapter&p=132"},"modified":"2019-01-03T10:35:47","modified_gmt":"2019-01-03T10:35:47","slug":"preparation-of-profit-and-loss-accounts","status":"publish","type":"chapter","link":"https:\/\/ebooks.inflibnet.ac.in\/mgmtp02\/chapter\/preparation-of-profit-and-loss-accounts\/","title":{"rendered":"Preparation of Profit and Loss Accounts"},"content":{"raw":"
\"epgp<\/a>\r\n<\/span><\/div>\r\n \r\n\r\n \r\n\r\nIntroduction:<\/strong>\r\n\r\n \r\n

The determination of Gross Profit or Gross Loss is done by preparation of Trading Account. But it does not reveal the Net Profit or Net Loss of a concern during the particular period. This is the second part of the income statement and is called as Profit and Loss Account. Profit and loss account starts with gross profit brought down from trading account on the credit side. (If gross loss, on the debit side). All the indirect expenses such as office and administrative expenses, selling and distribution expenses and non operating expenses are debited and all the revenue incomes are credited to the profit and loss account and then net profit or loss is calculated. If incomes or credit is more, than the expenses or debit, the difference is net profit. On the other hand, if the expenses or debit side is more, the difference is net loss. This Net Profit or Net Loss is transferred to the Capital Account of Balance Sheet. Profit and loss account is prepared to ascertain the net profit of the business concern for an accounting period. In the words of Prof. Carter \u201cProfit and loss account is an account into which all gains and losses are collected in order to ascertain the excess of gains over the losses or vice versa.\u201d<\/p>\r\n \r\n

It shows that only Indirect expenses are taken to Profit & Loss account and deducted from Gross Profit. Such expenses are of the following types:<\/p>\r\n \r\n

(i) Administrative expenses or Office expenses: It includes office salary and wages, Insurance, Rent, Printing, Postage, Audit fee, law charges, repairs etc.<\/p>\r\n

(ii) Selling and distribution expenses: It includes Salesman\u2019s salaries, travelling expenses, advertising, discount allowed, bad debts, warehouse expenses etc.<\/p>\r\n

(iii) Financial expenses: These expenses which are incurred for acquiring necessary finances for the business are called financial expenses. These include: Interest on capital, Cash discount allowed, bank charges etc.<\/p>\r\n

(iv) Maintenance and depreciation expenses: It includes repair to building, furniture, machinery, depreciation to building, furniture etc.<\/p>\r\n

(v) General expenses and Losses: It includes loss on the sale of fixed assets, loss by fire, theft, etc. Fines, Charity, donation and Gifts, Trade expenses etc.<\/p>\r\n

(vi) Miscellaneous income: It includes discount received, commission received, dividend received, bad debts recovered and income from investments.<\/p>\r\n \r\n\r\nDEBIT SIDE<\/strong>\r\n\r\n \r\n\r\nExpenses shown on the debit side of profit and loss account are classified into two categories.\r\n