Department Of Technical Education

Andhra Pradesh
Name : N.Sambaiah
Designation : Head of Section
Branch : DCCP
Institute : SUVR & SR Govt Polytechnic for
Women, Ethamukkala
Year : I year
Subject : Accountancy-I
Subject Code : CCP-102
Topic : Final Accounts
Duration : 100 Mts
Sub-topic : Preparation of Profit & Loss account
Teaching aids : PPT

CCP102.125 TO 126 1
Objectives

On completion this period , you will be able to know

 Format of profit & loss A/c
 Items in profit & loss A/c

CCP102.125 TO 126 2
Known to Unknown

 In the previous class, you learnt preparing trading

A/c to know gross profit /gross loss trading A/c
records, factory/production expenses only
 Gross profit/loss does not reflect true profit/loss
made in business
 The next step in preparation of P & L A/c to know
net profit/loss

CCP102.125 TO 126 3
What is a Profit and Loss account?

 Second step in final accounts

 Prepared to find out net profit or net loss of the
year
 Starts with Gross Profit on credit side or gross loss
on the debit side
 All incomes and gains of the year received or
accrued on credit side
 All the expenses of the year whether paid out
standing debited

CCP102.125 TO 126 4
What is a profit and loss account? (contd.)

 After entering all incomes and gains on credit side

and expenses on debit side, the account is
balanced
 If total of credit balances is more than total of
debit balances .. Difference is Net Profit
 If total of debit balances is more than total of credit
balances .. Difference is Net Loss

CCP102.125 TO 126 5
Items of gains/incomes

 Discounts received
 Commissions received
 Interest received
 Rent received etc.
 Dividends received
 Profit on sale of assets

CCP102.125 TO 126 6
Types of expenses
 Administrative expenses
 Selling and distributive expenses
 Financial expenses
 Maintenance and depreciation expenses
 Provisions

CCP102.125 TO 126 7
Form of Profit & Loss account
Profit and loss accounT of ---------- company
for the year ending------------.
Dr Cr
Particulars Amount Particulars Amount
Rs. Rs.
To gross loss xxxxxx By Gross profit Xxxxxx
By administrative exp. By discount received Xxxxxx
a. office salaries Xxxxxx By commission recd. Xxxxxx
b. office rent Xxxxxx By interest received Xxxxxx
By selling & distribu- By profit of sale on
tion expenses asset Xxxxxx
a. advertisement Xxxxxx By dividend received Xxxxxx
b. traveling exp. xxxxxx By any other income xxxxxx
Contd..
CCP102.125 TO 126 8
Form of Profit & loss account (contd..)
Dr Cr

To Financial exp.
a. interest on loans Xxxxxxxx
b. interest on capital Xxxxxxxxx
To Maintenance & de-
preciation exp.
Xxxxxxxxx
a. repairs on builds.
b. depreciation on
Xxxxxxxxx
machinary
To Provisions
a. reserve on debtors Xxxxxxxxx
b. provision for Xxxxxxxxx
future profits.
To net profit Xxxxxxxxx
--------------- -------------
Xxxxxxxxxx Xxxxxxxx
--------------- -------------

CCP102.125 TO 126 9
Explanation of items on credit side

 Gross profit : transferred from Trading account

 Discount received: creditors give discounts for
prompt cash payments
 Commission: for services rendered, firm receives
commission
 Interest received: sometimes, firm receives interest
from debtors for late payment
 Rent received : firm receives rent from firm’s
properties

CCP102.125 TO 126 10
Items on credit side (contd..)

 Dividends interest : When firm invests shares/

debentures it gets dividend interest
 Profit on sale of assets: Firm sell its assets like
land and buildings yielding profit
 Any other income: Earned by the firm during the
year

CCP102.125 TO 126 11
Items on debit side
 Administrative expenses
 Selling & distribution expenses
 Financial expenses
 Maintenance and depreciation expenses
 Provisions

CCP102.125 TO 126 12
Administrative expenses

 Expenses incurred by the firm for maintenance of

office and administration of business
 E.g :
 Office salaries, office rent, office lighting
 Printing & stationery
 Postage, telegrams and telephones
 Legal expenses and audit fee
 General expenses and bank charges

CCP102.125 TO 126 13
Selling and distributive expenses

 Expenses incurred for selling and distribution of

goods.
 E.g :
 Godown rent, Godown insurance (related to
sales only)
 Traveling expenses, agent commission, free
samples
 Carriage outwards, bad debts
 Advertisement

CCP102.125 TO 126 14
Financial expenses

 Interest on capital
 Interest on loans

CCP102.125 TO 126 15
Maintenance and depreciation expenses

 Expenses incurred for maintenance of assets and

for depreciation incurred because of usage of
machines & equipment
 E.g :
 Repairs to buildings, furniture, machinery and
equipment
 Depreciation on machinery, equipment,
vehicles, buildings etc

CCP102.125 TO 126 16
Provisions

 Provisions are the actual expenses made to meet

the future unexpected contingencies
 E.g :
 Reserve for doubtful debtors
 Reserves on profits

CCP102.125 TO 126 17
Uses of profit & loss account

 Shows the net profit/loss

 Compares previous years profits with present
year profit. It will help management to take right
decisions
 Guides management in controlling expenses and
to improve future profits
 Calculates taxes payable to Government

CCP102.125 TO 126 18
Summary

 Profit and loss account is prepared to find out net

profit or net loss . All indirect expenses
[administrative expenses, selling expenses,
maintenance and depreciation expenses] and
provisions debited to this account. Gross profit and
other incomes earned credited to this account.
Net profit is ascertained by balancing this account

CCP102.125 TO 126 19
 QUIZ
1. Which of the following items does not appear in
P&L A/c ?
a) Bad debts
b) Depreciation
c) Factory wages
d) None of the above

CCP102.125 TO 126 20
1. Excess of incomes & gains total over expenses
total causes _____
a) Net loss
b) Gross profit
c) net profit
d) None of the above

CCP102.125 TO 126 21
Frequently asked questions

1. What is the importance of the profit & loss

account?
2. Draw the form of the profit & loss account.
3. List any four items that come on the credit side of
the profit and loss account.
4. List any eight items that come on the debit side of
the profit and loss account.
5. What are the uses of the profit & loss account?

CCP102.125 TO 126 22