PROFIT AND LOSS ACCOUNT i ted By: Dr. Ruchika Batra ne MBA Hos lospital ManagementCONTENTS » Definition » Important Points pertaining to profit and loss account. + Items shown on the Debit Side » Items shown on the Credit Side > Advantages > Limitations > Closing entries for Profit and Loss account > Format of Profit and Loss Account > Illustration » New format of preparing Statement of Profit and loss under (revised) Schedule IIT, Part-II of the companies act 2013DEF TIO Profit and Loss Account or Income Statement is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. * Itis prepared after the Trading Account and thus, is the second stage of Financial Statement.IMPORTANT POINTS PERTAINING TO PROFIT AND LOSS ACCOUNT >The Profit and Loss Account indicates how the revenues are transformed into the net income or net profit. » Profit and Loss Account deals with Only INDIRECT EXPENSES. ?It'is prepared according to the Accrual basis of Accounting. While, preparing the Profit and Loss Statement, Matching Concept is used to record expenses and incomes. >This is an account prepared for one operating cycle of the firm ie. 12 months ih period. There is a Debit Side and a Credit Side in the Profit and Loss Account, » The expenses and losses are debited while the income (Revenue) and gains are credited.» Credit Side > Debit Side * If the credit side is more than the Debit side of the Profit and Loss Account then it denotes NET PROFIT. + This NET PROFIT is added to the Capital Account on the Balance Sheet. > Debit Side > Credit Side + If the Debit Side is more than the Credit Side it denotes NET LOSS, * This NET LOSS is Subtracted from the Capital in the Balance Sheet.ITEMS SHOWN ON THE DEBIT SIDE + Office and Administration Expenses ¥ Telephone Charges “Audit Fees ¥ Legal Charges Y Salaries ¥ Rent and taxes v Electricity Charges e ; ¥ Printing and Stationary Henin ano Hanes A v mitt ¥ Postage and Telegram ee ~ Miscellaneous Expenses/Sundry y¥ Insurance charges expenses @* Selling and Distribution + Finance Expenses Expenses 5 S ¥ Interest on Loan Y Salesman’s Salaries and Commissions ¥ e. #MAgobtisemont Interest on Mortgage payable. ¥ Godown/warehouse expenses + Abnormal Losses ¥ Packing expenses ¥ Loss of stock by fire not covered by ¥ Freight and Carriage on sales insurance ¥ Delivery charges ¥ Bad debts ¥ Discount Allowed ¥ Loss on sale of fixed asset ¥ Loss by theft ¥ Cash EmbezzlementITEMS SHOWN ON THE CREDIT SIDE ¥ Gross Profit ¥ Interest Received ¥Income from Investments ¥ Rent Received ¥ Discount received ¥Bad Debts Recovered ¥ Profit on Sale of Fixed Assets.ADVANTAGES OF PROFIT AND LOSS ACCOUNT This gives the actual infomation about net profit ora net ‘of the business for an accounting period ‘othe profits disclosed by the PRL Account for a particular period can be compared with the Previous years results, + Thay help in control and detaining indirect. or non expenses bby providing important information about these expenses,a LIMITATIONS OF PROFIT AND LOSS ACCOUNT Only show past performance and can be difficult to say what will happen in the future, . Window Dressing. . ‘The profit and loss account is prepared on accrual system of aéeotunting which provides a better measure of performance, but includes a number of non-cash items in its arrival at the figure of net profit. For example, depreciation expense is an allocation of cost that has no associated cash outflow, vet it decreases net income.CLOSING ENTRIES FOR PROFIT AND LOSS ACCOUNTG) For transfer of various expenses to Profit & Loss A/c Profit and Loss A/c Dr. ‘To Various Expenses A/c Gi) For transfer of various incomes and gains to Profit & Loss A/c Various Incomes & Gains A/c Dr. To Profit & Loss Ale Gii) (a) For Net Profit Profit & Loss A/e Dr. To Capital A/c (b) For Net Loss Capital Ale Dr To Profit & Loss A/eFORMAT OF PROFIT AND LOSS ACCOUNTProfit and Loss Account Statement for the year ended....... Dr. iecTanle ELE} Amount Tae Le Gr; Amount lo Carriage Outwards - To General Expenses To Discount Allowed To Stationary To Advertisement To Insurance - To Net Profit XXXX XXXX XXX XXKK XXKX XXXK XXXX XXXX = By Gross Profit b/ - By Interest Received - By Rent Received - By Net Loss XAKX XXXX XXXX XAXK XXXILLUSTRATIONQ, Prepare a Profit and Loss Account for the Year ended 31* March 2018. er 1. Gross Profit 2. Manager Salary 3. Office Lighting 4. Office Rent 5. Discount Received 6 7. 8 Local Taxes . Salesmans Salary Legal Charges Paid 9. Commission Charges Paid 10. Dividend Received Bad Debts Rent Received Advertising Charges 14. Discount Allowed 15, Package Charges 16. Depreciation Charges 17. Repairs and Maintenance 18, Interest on Loans 19, Interest on Loan receivedSolution: Profit and Loss Account Statement for the Year Ending 31 March 2018 Or Gr eines rarer Particulars To Manager Salary By Gross Profit b/d To Office Lighting By Discount Received To Office Rent - By Divi To Salesman Salary ~ By Rent Rec nmission Charges - By Interest Re = By Net Loss ertising Charges To Package Charges Depreciation C! 10,000 2,500 fo Interes 1,500 To Local 1000 132,000NEW FORMAT OF PREPARING STATEMENT OF PROFIT AND LOSS UNDER (REVISED) SCHEDULE III, PART-II OF ce ACTfor the year ending swnrmn fin wd | piisores For the | Figures For the Pevticulare Pt | citvane mcporting | Previous moparing — ee Teriod ‘Period 8. Omer income “Total Rewari (= WV. Expenase ‘Cost of Matarais Cansomes Purenasas of Seackin-trade [Changes is Invertoties of Finished Goods Worcin progress ana Stock n-tmce | Employees Genellts Expermen Finance Costs Depreciation and Amorteation Expenses Diner Expenses ‘ota! eapenae Prot betere Faceotional and Eattacrsinaey hams and Tax Gt 9 Excaptional tema Prot balers Enarmondinary Hema and Tas {¥—Mt Enraordinary hems Profit eters Tax (ViVi) Expersee 11) Current Ta (2) Catered Tax | Proft (Laut) for tha Pari trom Continuing Opseatians (vi via) Profit lisas! tom Deszaninying Operations Tax Eopanae of Dasontauing Opsravons Profit Lousl trom Discontining Operations (Afr tax) Bet — san) | Prot Woes! for he eriod A — NY Earnings per Eeuity Shave | 1 ane 2) Oltutea |