Financial Accounting, SS 1, Week 6
Topic: Profit and Loss account
Introduction
The profit and loss account is the account that shows the net profit or net loss of an organization. Income or gains are credited while expenses are debited . The profit or loss will be taken to the capital account.
Profit and loss format:
Credit side: The gross profit from the trading account will be recorded on the credit side and other incomes or gain will be added.
Debit side: The total expenses will be recorded on the debit side . The differences between the credit side and the debit side is the net profit, or net loss if the debit side is greater , then we have net loss and if the credit side is greater, there is profit. The expenses incurred in the trading period will vary in accordance with the nature of the business.
Profit and loss account appear in this format
Expenses
Wages and salaries X Gross profit b/d X
Telephone X Discounts received X
Bad debts X Bank interest X
Increase in provision for bad debt X Reduction in provision for bad debts X
Motor expense X Commission received X
Stationary X Profit on sales of assets X
Bank charges X Recovery of bad debts X
Loss on sales of asset X
Advertising X
Lighting and heating X
Repairs X
Postages X
Rent X
Rate X
Discounts allowed X
Motor expenses X
