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Know the Best Way to Explain Profit and Loss Account Homework Answers

by Jul 9, 2017Accounting

Profit and loss is a topic of mathematics which comes in handy on a daily basis. So, the concept of profit and loss is a part of almost every calculation that you do. Starting from buying grocery to making a final business deal, everywhere you will notice it as a governing factor. Hence, it is very important for you students to be well-versed with the topic. So, this is when profit and loss account homework answers will solve all your homework related queries.

What is profit and loss account?

Profit and loss is the second part of the topic trading and profit and loss. The account is prepared with the use of trial balance.

The main aim behind the preparation of this account is that calculate the actual profit of any business venture over a particular period of time taking into account all the indirect income and expenditure which are not shown in the trading account. Profit and loss accounts are statements which consist of the following columns:

  • Expenditure
  • Amount Debit
  • Income
  • Amount Credit

All the expenses in relation to profit and loss account are shown on the debit side of profit and loss account while all indirect incomes relating to the account fall on the credit side of profit and loss account. Therefore, profit and loss account homework answers will help you distinguish between the two.

Here are the following items that appear on both sides:

Credit side:-

  • Interest from the bank
  • Cash discount received
  • Interest from various sources
  • Profit from the sale of fixed assets
  • Commission and Rent
  • Miscellaneous Income
  • Transfer of net loss to capital account

Debit side:-

  • Gross loss according to trading account
  • Salary, Bank charges
  • Endorsement and publicity expenditure
  • Promotional Expenses
  • Interest on Bank Loans
  • Interest of capital of partners
  • Insurance, legal and professional expenditure

After arranging all the items in their respective columns, total calculation of both columns of profit and loss account happens

So, after the calculation is the credit side is more than its debit side then it is a net profit firm and if the debit side is more than its credit side, then it is a net loss for the firm.

Once the calculation is over, there is a transfer of net profit or net loss to the capital account in case of proprietorship or partnership form of business.

However, transfer of net profit of a finite company is to its reserve or surplus account after making necessary provisions for income tax, dividend, etc. Profit and loss account homework answers will help you calculate both the side of an account with ease.

Profit and Loss Account Homework Answers: Detailed idea

How is it prepared?

Profit and loss account preparation happens with the help of a trial balance sheet. Two columns are created namely credit and debit columns and the placement of items happens with respect to each column.

For example, indirect income which has no direct relation to purchasing or sales fall on the credit side and indirect expenses which have no relation to purchasing or sale fall on the debit side.

What are the benefits of preparing it?

  • It is important to make a profit and loss account in order to pay the exact income tax to the authorities
  • The maintenance of this account will establish the income of all partners who hold a share
  • To get an idea of the accurate profit margin, it is necessary to prepare an account
  • The preparation of balance sheet happens only after a profit and loss account.
  • Profit and loss is mandatory for all companies that appear on the stock exchange list
  • The overall accounts are incomplete without profit and loss account. It is an inevitable part of the accounting system

When is profit and loss account prepared?

It depends on a particular firm as to when it wants to prepare the account. This means it is mostly done on a monthly quarterly or yearly basis according to requirements of the company.

So, for example, if a firm which is on the stock exchange list provides monthly details of sale and profit.

Then that company has to make the trading account on a monthly basis. But the calculation and preparation happen on a yearly basis.

Progression of expense of a profit and loss account:

Office and administrative expenditure

The management expense comes under this ambit. Like salaries of employees, office rent, stationery, electricity and telephone bill, etc. All of this comes under office expense.

Selling and distributing expenditure

These expenses have direct or indirect relation with the sales. For example, endorsements, salesmen salaries, packaging and travel expenses and much more such expenses come under this umbrella.

Financial Expenditure

Every expense which is a part of administrative or sales expenditure comes under financial expense.

Profit and loss account homework answers will teach you every aspect of the topic in minute details and make you efficient enough to write standard assignment papers.

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Profit and loss is an extremely intriguing topic which will grip your attention. Also, if you have a command over this topic, it will prove useful for a lot of things in your day to day life. Moreover, profit and loss account homework answers will make your task easier and in no time you will become a pro at profit and loss accounting.