Format Of  Profit and Loss Account :

 

Profit and Loss Account
for the year ended ………………….
Dr.                                                                                                                                                                                                                                                  Cr.

Particulars	Rs.	Particulars	Rs.
To Trading A/c                       (Gross Loss)	x x x	By Trading A/c                                          (Gross profit)	x x x
To Salaries	x x x	By Commission earned	x x x
To Rent & rates	x x x	By Rent received	x x x
To Stationeries	x x x	By Interest received	x x x
To Postage expenses	x x x	By Discount received	x x x
To Insurance	x x x	By Net Loss                                                                                             (Transferred to  Capital A/c)	x x x
To Repairs	x x x
To Trading expenses	x x x
To Office expenses	x x x
To Interest paid	x x x
To Bank charges	x x x
To Sundry expenses	x x x
To Commission paid	x x x
To Discount allowed	x x x
To Advertisement	x x x
To Carriage outwards	x x x
To Travelling expenses	x x x
To Distribution expenses	x x x
To Repacking charges	x x x
To Bad debts	x x x
To Depreciation	x x x
To Net Profit                                                                              (transferred to Capital A/c)	x x x		______
	x x x		x x x

 

Items appearing in the debit side

Items appearing in the debit side Those expenses which are chargeable to the normal activities of the business are recorded in the debit side of profit and loss account. They are termed as indirect expenses.

i. Office and Administrative Expenses : Expenses incurred for the functioning of an office are office and administrative expenses – office salaries, office rent, office lighting, printing and stationery, postages, telephone charges etc.

ii. Repairs and Maintenance Expenses : These expenses relates to the maintenance of assets – repairs and renewals, depreciation etc.

iii. Financial Expenses : Expenses incurred on borrowings – Interest paid on loan.

iv. Selling and Distribution Expenses : All expenses relating to sales and distribution of goods – advertising, travelling expenses, salesmen salary, commission paid to salesmen, discount allowed, repacking charges etc.

Items appearing in the credit side

Besides the gross profit, other gains and incomes of the business are shown on the credit side. The following are some of the incomes and gains.

i. Interest received on investment

ii. Interest received on fixed deposits.

iii. Discount earned.

iv. Commission earned.

v. Rent Received

Illustration 

Prepare Profit and Loss Account, from the following balances of Mr.Kandan for the year ending 31.12.2003.

Office rent                   Rs. 30,000                                                   Salaries                                    Rs. 80,000
Printing expenses      Rs. 2,000                                                     Stationeries                            Rs. 3,000
Tax, Insurance             Rs. 4,000                                                      Discount allowed                 Rs. 6,000
Advertisement            Rs. 36,000                                                    Travelling expenses             Rs. 26,000
Gross Profit                 Rs.2,50,000                                                  Discount received                Rs. 4,000

Solution:

Profit and Loss Account of Mr. Kandan
for the year ending 31st Dec 2003
Dr.                                                                                                                                                                                                                                             Cr.

Particulars	Rs.	Particulars	Rs.
To Salaries	80,000	By Gross profit                                                                                             (transferred from the Trading A/c)	2,50,000
To Office rent	30,000	By Discount received	4,000
To Stationaries	3,000
To Printing expenses	2,000
To Tax, insurance	4,000
To Discount allowed	6,000
To Travelling expenses	26,000
To Advertisement	36,000
To Net profit                                                                   (transferred to capital A/c)	67,000		________
	2,54,000		2,54,000

Illustration:

Prepare Trading and Profit Loss Account for the year ending 31st March 2002 from the books of Mr. Siva Subramanian.

                                                    Rs.                                                                                                                                 Rs.
Stock  (31.3.2001)                15,000                                                                         Carriage outwards                4,000
Purchases                              1,65,000                                                                     Wages                                     30,000
Purchases return                 10,000                                                                         Sales return                            5,000
Postage                                  3,000                                                                           Salaries                                  20,000
Discount received               5,000                                                                            Stationeries                          2,000
Bad debts                             1,000                                                                             Interest                                  8,000
Sales                                      3,00,000                                                                        Insurance                              4,000
Stock (31.3.2002)                80,000

Solution:

Trading and Profit & Loss A/c of Mr. Siva Subramanian
for the year ended 31st March 2002
Dr.                                                                                                                                                                                                                                                  Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Opening stock		15,000	By Sales	3,00,000
To Purchases	1,65,000		Less returns	5,000
Less Returns	10,000				2,95,000
		1,55,000	By Closing stock		80,000
To Wages		30,000
To Gross profit (transferred to		1,75,000
P&L A/c)
		3,75,000			3,75,000
To Salaries		20,000	By Gross profit		1,75,000
To Postage		3,000	(transferred from
To Bad debts		1,000	trading A/c)
To Carriage outwards		4,000	By Discount
To Stationeries		2,000	received		5,000
To Interest		8,000
To Insurance		4,000
To Net profit (transferred Capital A/c;		1,38,000
		1,80,000			1,80,000

Illustration 

From the following trial balance of Mr.John, prepare Trading, Profit and Loss Account for the year ending 31.12.2002.

 

Particulars	Debit Rs.	Particulars	Credit Rs.
Purchases	5,40,000	Sales	10,40,000
Salaries & wages	3,50,000	Returns outward	12,000
Office expenses	4,000	Discount received	6,000
Trading expenses	8,000	Interest received	3,000
Factory expenses	11,000	Capital	1,78,000
Carriage inwards	8,000
Returns inward	12,000
Discount allowed	4,000
Commission	2,000
Stock	60,000
Income tax	40,000
Cash in hand	2,00,000
	12,39,000		12,39,000

 

Closing stock is valued at Rs. 1,35,000.

 

 Solution :

Trading, Profit & Loss Account of Mr. John
for the year ending 31.12.2002
Dr                                                                                                                                                                                                                                                Cr.

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Stock		60,000	By Sales	10,40,000
To Purchases	5,40,000		Less Sales return	12,000	10,28,000
Less Purchases return	12,000	5,28,000	By Closing stock		1,35,000
To Trading expenses		8,000
To Factory expenses		11,000
To Carriage inwards		8,000
To Gross profit (transferred to P&L A/c)		5,48000
		11,63,000			11,63,000
To Salaries & wages		3,50,000	By Gross profit		5,48,000
To Office expenses		4,000	(transferred from
To Discount allowed		4,000	trading A/c)
To Commission		2,000	By Discount
To Net profit		1,97,000	received		6,000
(transferred to			By Interest
capital A/c)			received		3,000
		5,57,000			5,57,000

 

Note:
i. If trial balance shows both trading expenses as well as office expenses, the trading expenses should be shown in the trading
account and office expenses should be shown in profit & loss account. On the other hand, if the trial balance shows only trading expenses, it should be shown in the profit & loss account.

ii. If in the trial balance, wages are clubbed with salaries and shown as ‘wages and salaries’. This item is shown in trading account. On the other hand, if it appears as ‘salaries and wages’, this item is recorded in the profit & loss account.

iii. Income tax paid by a proprietor is considered as personal expenses. So it should be deducted from the capital.