For every business unit, management of its profits and losses are of prime importance and this Profit and Loss Account is specifically prepared to delve deep into these aspects. The income and expenditure of a business unit is categorised under this account under heads of credit and debit side. With all details being placed on a systematic note, balancing of this account is done.
If balance is on debit side, it is termed as Net Profit and vice versa. The Net Profit is transferred and added to Liabilities section. The Net Loss is transferred and subtracted from Capital section.