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How to Prepare Profit and Loss Account?

How to prepare profit and Loss account? The main items which appear in the Profit and loss Account are given below. • Office and Administration Expenses : These expenses are incurred on day to day administration of the business. These include office rent, office lighting, office salaries, insurance, postage and telegrams, stationery and printing, audit fees, legal expenses, telephone charges, rates and taxes, general expenses, depreciation on fixed assets, etc. These are all shown on the debit side of the Profit and Loss Account.

How to prepare profit and Loss account?

The main items which appear in the Profit and loss Account are given below.

Office and Administration Expenses : These expenses are incurred on day to day administration of the business. These include office rent, office lighting, office salaries, insurance, postage and telegrams, stationery and printing, audit fees, legal expenses, telephone charges, rates and taxes, general expenses, depreciation on fixed assets, etc. These are all shown on the debit side of the Profit and Loss Account.

SELLING AND DISTRIBUTION EXPENSES : These expenses are incurred for promoting sales and on distribution of goods sold. These consist of advertisement, godown rent, storage expenses, carriage outwards, salaries of sales staff, commission on sales, brokerage, packing and forwarding expenses, export duty, delivery van expenses, bad debts, provision for bad and doubtful debts, etc.

FINANCIAL EXPENSES: These expenses are incurred on obtaining funds to carry on the business. Discount allowed interest on loan and debentures, discounting charges on bills discounted, bank charges, etc. are examples of such operating expenses.

ABNORMAL LOSSES: These refer to losses which do not occur regularly. Stock destroyed by fire, goods lost in transit, loss on sale of fixed assets, etc. is examples of such losses.

All the above items are recorded on the debit side of the Profit and Loss Account. All outstanding expenses are added and all expenses paid in advance (prepaid) are deducted from the above expenses

Items recorded on the credit side of the Profit and Loss Account are as under.

GROSS PROFIT -It is transferred from the Trading Account.

REVENUE INCOMES : These are incomes which arise out of the ordinary course of business and relate to the current period only. Discount received, commissions received, etc. are examples of revenue incomes.

NON-TRADING INCOMES : These incomes arise from non-trading activities of the firm. These include interest on investments, dividend received, rent income from property, etc.

ABNORMAL GAINS : These refer to the incomes like profit on sale of investments, profit on sale of fixed assets, etc.

• All incomes accrued but not received are added to and all incomes received in advance are deducted from the above incomes.

 

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