The document discusses the profit and loss account, including: 1. It defines the profit and loss account as a financial statement that shows a company's revenues and expenses over a period of time, transforming revenues into net income or loss. 2. Items debited include indirect expenses like salaries, rent, depreciation, while items credited include revenue, income, and gains. 3. The profit and loss account indicates whether the company had a net profit or loss over the period based on whether the credit side is greater than the debit side.

1. PROFIT AND LOSS
ACCOUNT
Presented By: Dr. Ruchika Batra
Sector: MBA Hospital Management
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2. 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 III, Part-II of the companies act 2013
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3. DEFINITION
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.
• It is prepared after the Trading Account and thus,
is the second stage of Financial Statement.
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4. 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 i.e.
12 months in 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. 4

5.  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.
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6. • Office and Administration
Expenses
Salaries
Rent and taxes
Electricity Charges
Printing and Stationary
Postage and Telegram
Insurance charges
ITEMS SHOWN ON THE DEBIT SIDE
Telephone Charges
Audit Fees
Legal Charges
Repairs and Renewals
Depreciation
Miscellaneous Expenses/Sundry
expenses 6

7. • Selling and Distribution
Expenses
 Salesman’s Salaries and Commissions
 Advertisement
 Godown/warehouse expenses
 Packing expenses
 Freight and Carriage on sales
 Delivery charges
 Bad debts
 Discount Allowed
• Finance Expenses
 Interest on Loan
 Interest on Mortgage payable.
• Abnormal Losses
 Loss of stock by fire not covered by
insurance
 Loss on sale of fixed asset
 Loss by theft
 Cash Embezzlement
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8. 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.
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9. ADVANTAGES OF PROFIT AND LOSS
ACCOUNT
For
information
on Net Result:
This gives the actual information about net profit or a net
of the business for an accounting period.
Comparability:
The profits disclosed by the P&L Account for a particular
period can be compared with the Previous years results.
Controlling of
Profit and loss:
They help in control and detaining indirect or non-expenses
by providing important information about these expenses.
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10. LIMITATIONS OF PROFIT AND LOSS
ACCOUNT
1. Only show past performance and can be difficult to say what will happen
in the future.
2. Window Dressing.
3. The profit and loss account is prepared on accrual system of accounting
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, yet it decreases net income.
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11. CLOSING ENTRIES FOR
PROFIT AND LOSS
ACCOUNT
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12. (i) For transfer of various expenses to Profit & Loss A/c
Profit and Loss A/c Dr.
To Various Expenses A/c
(ii) For transfer of various incomes and gains to Profit & Loss A/c
Various Incomes & Gains A/c Dr.
To Profit & Loss A/c
(iii) (a) For Net Profit
Profit & Loss A/c Dr.
To Capital A/c
(b) For Net Loss
Capital A/c Dr
To Profit & Loss A/c
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13. FORMAT OF PROFIT AND
LOSS ACCOUNT
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14. Particulars Amount Particulars Amount
- To Carriage
Outwards
- To General Expenses
- To Discount Allowed
- To Stationary
- To Advertisement
- To Insurance
- To Net Profit
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
- By Gross Profit b/d
- By Interest Received
- By Rent Received
- By Net Loss
XXXX
XXXX
XXXX
XXXX
XXXX XXXX
Dr. Cr.
Profit and Loss Account Statement for the year ended……..
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15. ILLUSTRATION
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16. Q. Prepare a Profit and Loss Account for the Year ended 31st March 2018.
Particulars Amount (in Rs.)
1. Gross Profit
2. Manager Salary
3. Office Lighting
4. Office Rent
5. Discount Received
6. Local Taxes
7. Salesman’s Salary
8. Legal Charges Paid
9. Commission Charges Paid
10. Dividend Received
11. Bad Debts
12. Rent Received
13. Advertising Charges
14. Discount Allowed
15. Package Charges
16. Depreciation Charges
17. Repairs and Maintenance
18. Interest on Loans
19. Interest on Loan received
1,00,000
30,000
5,000
15,000
4,000
1,000
20,000
3,000
10,000
2,000
1,500
1,000
25,000
3,000
7,500
10,000
2,500
1,500
500 16

17. Particulars Amount Particulars Amount
- To Manager Salary
- To Office Lighting
- To Office Rent
- To Salesman Salary
- To Commission Charges
- To Legal Charges
- To Bad Debts
- To Advertising Charges
- To Package Charges
- To Depreciation Charges
- To Repairs and Maintenance
- To Interest on Loans
- To Local Taxes
30,000
5,000
15,000
20,000
10,000
3,000
1,500
25,000
7,500
10,000
2,500
1,500
1000
1,32,000
- By Gross Profit b/d
- By Discount Received
- By Dividend Received
- By Rent Received
- By Interest Received
- By Net Loss
1,00,000
4000
2000
1000
500
24,500
1,32,000
Dr. Cr.
Solution:
Profit and Loss Account Statement for the Year Ending 31 March 2018
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18. NEW FORMAT OF PREPARING
STATEMENT OF PROFIT AND LOSS
UNDER (REVISED) SCHEDULE III,
PART-II OF THE COMPANIES ACT
2013
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