PROFIT AND LOSS ACCOUNT  

Profit & Loss Account: This is an account prepared after the preparation of the Trading Account. It is debited with all operational expenses and credited with the gross profit and all other revenue accruing to a business.

Purpose of Preparing the Profit & Loss Account

The P&L account is prepared either to ascertain net profit or net loss.

Worked Example:

Question: From the trial balance of Diligent Stores Ltd above, you are required to prepare the Profit and Loss Account of the company for the year ended 31^st December, 2009.

Solution

                                             DILIGENT STORES LTD

                  Profit & Loss Account for the year ended 31^st December 2009.

                                                                        N                                                                          N

Less EXPENSES:                                                                                 Gross profit brought      7,165

Carriage outwards                                         200                                   down from Trading

Salaries and wages                                        3,862                                 Account                         7,165

Rent                                                                   304

Insurance                                                           74

Sundry expenses                                             664

Advertising                                                        216

General expenses                                            480

NET PROFIT                                                    1,361

______                                                                   ________

7,165                                                                          7,165