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Questions
Explain the needs of the Profit and Loss Account.
Discuss the need of a Profit and Loss Account?
What is the need of the profit and loss account?
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Solution
The Profit and Loss Account is essential for the following reasons:
- Knowledge of Net Profit or Net Loss: This offers information on a company’s profit or loss within a specific accounting period.
- Comparison with Profit of Previous Year: The Profit and Loss Account’s net results can be compared to the profits of previous years, and this kind of inter-period performance comparison can be used to measure the business’s efficiency.
- Control over Expenses: The profit and loss account provides information regarding different types of expenses. When required, effective expense control measures can be taken by comparing the current year’s expenses with those of the preceding year.
- Future Profit Planning: You can use the net profit from different years as a starting point for your future profit planning. It supports the company’s future growth and resource allocation.
Notes
Students should refer to the answer according to their questions.
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What is the need for preparing profit and loss account?
Give a word, term or phrase which can substitute the following statement:
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Prepare Profit and Loss Account of Sanjay Brothers for the year ended 31st March, 2018 from the following balances.
| 1) | Bank charges | ₹ 22,000 |
| 2) | Interest (Cr.) | ₹ 16,000 |
| 3) | Sundry expenses | ₹ 42,000 |
| 4) | Insurance | ₹ 35,000 |
| 5) | Salaries | ₹ 40,000 |
| 6) | Rates and Taxes | ₹ 13,000 |
| 7) | Postage | ₹ 8,000 |
| 8) | Advertisement | ₹ 40,000 |
| 9) | Rent paid | ₹ 32,000 |
| 10) | Bad debts | ₹ 10,000 |
| 11) | Commission (Cr) | ₹ 17,500 |
| 12) | Printing & Stationery | ₹ 21,000 |
| 13) | Loss by fire | ₹ 18,000 |
| 14) | Discount (Dr) | ₹ 23,000 |
| 15) | Discount (Cr) | ₹ 37,000 |
| 16) | Misc. Income | ₹ 14,000 |
| 17) | Depreciation | ₹ 34,000 |
| 18) | Carriage Outwards | ₹ 60,000 |
| 19) | Godown Expenses | ₹ 40,000 |
Note: Gross Profit ₹ 407500
What is the purpose of a Profit and Loss Account?
Where is gross profit or gross loss from the Trading Account recorded in the Profit and Loss Account?
Where is “Discount allowed” shown in the Profit and Loss Account?
