What do you mean by Profit and Loss Account? Give its specimen. Why is it prepared?


Ans – MEANING OF PROFIT & LOSS ACCOUNT
          The Profit & Loss Account is an account prepared to know the net results of the business operations during an accounting period. This account shows the net profit earned or net loss incurred by the business entity during an accounting period. This account is prepared after preparing the Trading Account. It shows the items of expenses and losses on the debit side and items of revenue profits and gains on the credit side. The amount of gross profit or gross loss as shown by the Trading Account is also transferred to the P & L A/c.

SPECIMEN: Profit and loss a/c is prepared in the following format:
PROFIT & LOSS ACCOUNT OF M/s …….

For the year ending ……..

Particulars
Rs.
Particulars
Rs.
To Gross Loss b/d
To Salaries
To Rent, Rates & Taxes
To Printing & Stationery
To Postage & telegrams
To telephone Expenses
To Travelling & Conveyance Expenses
To Legal & Professional Charges
To Audit Fees
To Advertisement & Publicity
To Commission/Selling Expenses
To Bad Debts
To Carriage/Freight Outwards
To Insurance
To Repairs & Maintenance
To Depreciation
To interest on Loan
To Bank Charges
To Discount allowed
To Loss by Fire/Theft/Account
To Loss on sale of Fixed Assets
To Net Profit (transferred to Capital A/c)






















By Gross Profit b/d
By Interest received
By Rent Received
By Discount Received
By Commission Received
By Profit on sale of assets
By Compensation received
By bad debts recovered
By Miscellaneous receipts
By Net Loss (transferred to Capital a/c)























PURPOSE:
Profit and loss a/c is prepared for the following purposes:
(i) To ascertain the amount of net profit or net loss.
(ii) To enable management to make a comparison of net profit/loss of the current year with that of the previous year. 

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