Trading And Profit And Loss Account Format – Accounting – Income Statement | 11. Accounting: Chapter 12: Final accounts of individual entrepreneurs – I
Profit and loss statement The profit and loss statement is the second part of the profit and loss statement. This is a nominal account in nature. A company is interested in knowing not only the gross profit or loss, but also the net profit received or the net loss during the year. Therefore, the income statement is prepared to determine the net profit or net loss during the year. The income statement includes all elements of indirect expenses and losses, as well as indirect income and income in addition to the gross profit or gross loss related to the reporting period. The difference is net profit or net loss. In the words of Professor Carter, “The profit and loss account is the account to which all profits and losses are collected to establish an excess of profits over losses, or vice versa.” Need to prepare an income statement An income statement is prepared for the following purposes: (i) Determination of net profit or net loss. The income statement shows the net profit available to the owner or the net loss incurred by him. Determining profitability helps in planning the growth and efficiency of a business enterprise. Intercompany comparison and intracompany comparison of income statement items help evaluate performance compared to other businesses and other divisions of the same business, respectively. (ii) Income comparison The net income of the current year can be compared with the profit of the previous years. This helps to know whether the business is running efficiently or not. (iii) Checking expenses The income statement helps to compare various expenses with expenses from previous years. You can calculate the percentage of individual expenses to net income and compare it with similar indicators from previous years. Such a comparison will be useful to take effective measures to control unnecessary expenses. (iv) Useful for preparing a balance sheet A balance sheet can be prepared only after the net profit or loss has been determined through the income statement. Net profit or loss is reflected in the balance sheet. Thus it eases the balance sheet. Preparing the Profit and Loss Statement The amount of gross profit or gross loss debited from the trading account is the first line on the income statement. All indirect costs and losses are charged to the profit and loss account. Indirect costs include office and administrative costs, selling costs, marketing costs, etc. Since the income statement is a nominal account, all indirect expenses and losses are recorded as debits, and all indirect income and profits are recorded as debits. Credit page. The items shown on the debit side of the profit and loss account are as follows: (i) Gross losses If the trading account offers gross losses, they are shown on the debit side of the profit and loss account. (ii) Indirect costs Costs not related to the acquisition of goods are indirect costs, ie costs incurred in connection with the administration, office, sale and distribution of goods are indirect costs. (a) Office and administrative expenses Office and administrative expenses such as salaries of office workers, office rent, lighting, postage, printing, legal fees, audit fees, depreciation and maintenance of office equipment, etc., are classified as office and administrative expenses. . expenses. (b) Selling and distribution expenses Expenses incurred in the sale, promotion and distribution of products, such as advertising expenses, sales commissions, transportation, bad debts, rent, packaging costs, etc., are classified as sales and distribution expenses. . (c) Other indirect costs and losses. Expenses such as loan interest, repair costs, depreciation, charity, losses from the sale of fixed assets and excess damages such as losses from fire, theft, etc., not covered by insurance, are recorded in this category. The items shown on the credit side of the income statement are as follows: (i) Gross profit The first item on the credit side of the profit and loss account is the gross profit deducted from the trading account if there is a gross profit. (ii) Other income and income All items of indirect income and income are presented in the credit part of the income statement. Investment income, rent earned, rebates received, commission earned, interest earned and dividends received are indirect income. Gains from the sale of fixed assets and investments are examples of gains. Closing the profit and loss account After deducting indirect expenses and losses and crediting all indirect income and income, if the credit amount of the profit and loss account exceeds the debit amount, the difference is called net income. On the other hand, if the debit total exceeds the credit, the difference is called a net loss. Net profit or net loss is transferred to the capital account. Income Statement Format Tutorial Non-business expenses are not shown on the income statement. Examples are personal expenses of the owner such as household and living expenses of the owner, income tax and insurance premium of the owner, etc. These expenses are classified by the owner as loans and are deducted from the equity on the liability side of the balance sheet. if they are paid from the company’s funds. Only income and expenses are reflected in the statement of trade and profit and loss. Capital inflows, capital gains, capital expenditures and capital losses are not recognized in trading transactions and income statements. Only the part of the capital items that relates to this reporting period is shown. For example, depreciation of fixed assets. The acquisition of fixed assets is a capital investment. But depreciation is an income item that refers to the use of a fixed asset in the current reporting period. Figure 8 Based on the following information, prepare an income statement for the year ended March 31, 2018. Solution Illustration 9 Based on the following information, prepare an income statement for the year ended December 31, 2017. Solution Exhibit 10 Based on the following information, prepare an income statement for the year ended December 31, 2017. Solution
Trading And Profit And Loss Account Format
11. Accounting: Chapter 12: Final Accounts of Individual Entrepreneurs-I: Income Statement | Accounting The accounting process ends with the preparation of the financial statement. Information about the financial position of each company is provided by financial statements. The main objective of preparing financial statements is to present a true and fair view of the financial performance and financial position. Accounting data are summarized in such a way that the profitability of the business is clearly visible. Financial reports also serve as an information tool for all parties associated with the company. To ensure consistency in reporting, these statements; which include the income statement, balance sheet and cash flow statement must be prepared in accordance with predetermined and established accounting principles and conventions.
Economic And Final Accounting Notes
It is the financial statement of an organization which helps to determine the losses incurred or profits made by the business during the financial or reporting year. Simply put, the income statement is a summary of the expenses and income of an organization and ultimately calculates the net figure of a business in terms of profit or loss. When an organization’s income exceeds its expenses, it is called net income. However, when an organization’s income is less than its expenses, it is called a net loss. The profit and loss account collects information from the trial balance and other specified transactions.
Income generated from business activities refers to income from operating activities. For example, Net Sales Revenue, Scrap Metal Sales, Trade Commission Received, and Service Revenue.
Income not received from business activities is classified as other income. It is divided into three categories; namely the rent received, the interest and dividends received, and the net profit/loss on the sale of the investment.
It consists of wages, salaries, social expenses of the staff such as canteen expenses, contributions to the reserve fund and other staff welfare fund.
Financial Statements 2
Miscellaneous expenses consist of expenses other than those mentioned above. For example, telephone expenses, sales and distribution expenses, rent and taxes, loss on sale of real estate, plant and equipment/investments, advertising expenses, bad debts, allowance for bad and doubtful debts, and allowable cash discount.
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The income statement (P&L) is a financial statement that starts with revenue and subtracts costs and expenses to arrive at net income, the company’s profitability, and
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