What is the Profit and Loss Account?

The profit and loss account is OPENED by recording the gross profit on the credit side or gross loss on the debit side.

For earning the NET profit, a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are DEDUCTED from profit or added to gross loss and thus, the resultant figure will be net profit or net loss.

Expenses included in the profit and loss account are Selling and distribution expenses, Freight & carriage on sales, Sales tax, ADMINISTRATIVE Expenses, Financial Expenses, Maintenance, depreciation and Provisions and more. On the credit side, Discount RECEIVED, Commission received, Profit on sale of assets and more appear.

Solved Question for You

Question: The following trial balance has been taken out from the books of XYZ as on 31st December 2009.

 ParticularsDr.Cr.Plant and Machinery100,000Opening stock60,000Purchases160,000Building170,000Carriage inward3,400Carriage outward5,000Wages32,000Sundry debtors100,000Salaries24,000Furniture36,000Trade expense12,000Discount on sales1,900Advertisement5,000Bad debts1,800Drawings10,000Bills receivable50,000Insurance4,400Bank balances20,000Sales480,000Interest received2,000Sundry creditors40,000Bank loan100,000Discount on purchases2,000Capital171,500