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Unit 13: Final Accounts for Companies

The student should note that there is no fundamental difference between the preparation of Notes
Trading and Profit and Loss A/c, for a sole trader, partnership firm or a company. The same
principles are adopted as all the expenses to earn an income in the concerned period are debited
in the Profit and Loss Account. Similarly, all the incomes in the revenue nature of the concerned
period are credited. And all the losses due to accident or depreciation in the value of assets due
to wear and tear and passage of time should be debited.
In spite of there being so many similarities, there are some difference which are listed below-

(a) Sole traders or partnership firms give the heading Trading and Profit and Loss A/c., while
companies give the heading Profit and Loss A/c, only.
(b) A company divides its profit and loss account into two i.e., profit and loss account proper
and profit and loss appropriation account, while in case of sale trader or partnership firm
it is not done so.

(c) Some special items such as interest on debentures, director’s fees etc., also appear in the
profit and loss account of a company while these do not appear in the case of profit and
loss account of a firm or sole trader.
(d) Income tax on profit is assumed an expenses in the case of a company, while it is not so in
the case of a firm or sole trader.

(e) Profit or losses of a non-corporate body are transferred to the capital account (or current
account of partners) while in the case of a company these are kept in a separate account.
(f) Part II of Schedule VI of the Companies Act, governs all the requirement of a profit and
loss account of a company. The profit and loss account should also be prepared as per
guidance of AS-1 Disclosure of Accounting Policies, AS-4 Contingencies and Events
Occurring after the Balance Sheet date and AS-5 Prior Period and Extraordinary Items and
Changes in Accounting Policies.

Contents of Profit and Loss Account

As per Part II of Schedule VI of the Companies Act, 1956, the following are the requirements as
to profit and loss account:

Requirements as to Profit and Loss Account

1. The provision of this part shall apply to the income and expenditure account referred to in
sub section (2) of Section 210 of the Act, in a likewise manner as they apply to a profit and
loss account, but subject to the modification of reference as specified in that sub-section.
2. The profit and loss account (a) shall be so made out as to clearly disclose the result of the
working of the company during the period covered by the account, and (b) shall disclose
every material feature including credits or receipts and debits or expenses in respect of
non-recurring transactions or transactions of an exceptional nature.
3. The profit and loss account shall set out the various items relating to the income and
expenditure of the company arranged under the most convenient heads; and in particular,
shall disclose the following information in respect of the period covered by the account:
(i) (a) The turnover, that is, the aggregate amount for which sales are effected by the
company, giving the amount of sales in respect of each class of goods dealt
with by the company and indicating the quantities of such sales for each class
separately.

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