FORMAT OF PROFIT AND LOSS ACCOUNT

Particulars Amount Particulars Amount

To gross loss transferred from trading a/c Xxx By gross profit transferred from trading a/c Xxx
To Salaries Xxx By interest received Xxx
To rent ,rates and taxes Xxx By discount received Xxx
To postage and telegram Xxx By commission received Xxx
To Audit fees Xxx By income from investment Xxx
To printing and stationery Xx By apprenticeship premium Xxx
To telephone charges Xxx By bad debt recovered Xxx
To legal charges Xxx By miscellaneous income Xxx
To insurance Xxx
To general expenses Xxx
To heating and lighting Xxx
To advertisement Xxx
To bad debt Xxx
To export expenses Xxx
To freight and carriage outwards Xxx
To bank charges Xxx
To entertainment expenses Xxx
To repairs and renewals Xxx
To depreciation Xxx
To interest Xxx
To trade expenses Xxx
To office expenses Xxx
To discount allowed Xxx
To travelling expenses Xxx
To loss by fire and theft Xxx
To interest on capital xxx
To net profit transferred to capital a/c xxx By net loss transferred to capital a/c Xxx
xxx xxx
Treatment of certain items in Trading ,Profit and loss a/c

1. Royalties

-payment made for using the right of others

Eg: Amount paid by the publishing company to the author
Royalties are paid
Based on production-Debited to trading A/c
Based on sales-Debited to P&L A/c

Note: If there is no instruction regarding royalties then it is

debited to P&L a/c
 Packages and Packing materials

• Two Types

• Primary packing-----Debited to Trading A/c

• Ordinary packing ---Debited to P&L A/c

Note: If there is no instruction then it is debited to P&L A/c

 Trade Expenses
• It represents business expenses of small amounts and
should be debited to P&L A/c

• It is also called General expenses or Sundry expenses or

Office expenses

• If both trade expenses and general expenses are given

then trade expenses is debited in the trading A/c and
general expenses in P&L A/c
 Income Tax
• It is not an expense connected with running of business

• It is treated as the personal expense of the proprietor

and is added with drawings which is ultimately deducted
from capital in the Balance sheet
 Balance sheet
• It is statement of assets and liabilities of
business prepared with a view to ascertain the
financial position of the business on a particular
date
• It is prepared immediately after the preparation
of Trading P&L A/c
• Balance sheet consist of two sides
-Left hand side------- Liability side
-Right hand side----Asset side
 Preparation of Balance sheet
• Two Ways

In the order of liquidity

In the order of Permanence
 Balance sheet in the order of Liquidity

Liabilities Amount Assets Amount

Current Liability Current Assets

Bank overdraft Xxx Cash in hand Xxx
Bills Payable Xxx Cash at bank Xxx
Outstanding expenses Xxx Bills receivables Xxx
Sundry Creditors Xxx Sundry Debtors Xxx
Long Term Liability Prepaid Expenses Xxx
Xxx Accrued income Xxx
Long term loan Closing Stock Xxx
Capital xxx Fixed Assets
Add Net profit Land and building Xxx
(less Net loss) xxx Plant and Machinery Xxx
xxx Furniture Xxx
Less Drawings xxx Xxx Goodwill Xxx
xxx xxx