Page 65 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes

Task Calculate the Gross Profit from the following:

Opening stock 11,500
Purchases 1,05,000
Wages 3,500
Sales 1,40,000

Hint: 20,000

Profit & Loss Account

Profit & Loss Account is the second part of Trading and Profit & Loss Account. Trading Account
shows the gross profit which is the difference of sales and cost of sale. Thus the gross profit can not
treated as net profit while the businessman wants to know how much net profit he has earned
from the operating activities during a period. For this purpose Profit & Loss Account is prepared
keeping in mind all the operating and non-operating incomes and losses of the business. In the
debit (left hand side) side all the expenses and losses are disclosed and in the credit side (right hand
side) all the incomes are disclosed. The excess of credit side over debit side is called net profit while
the excess of debit side over credit side shows net loss. Net profit increases the net worth of the
business, therefore, it is added to the capital of owner. Net loss decreases the net worth of business
so it is subtracted from capital. The proforma of Profit & Loss Account is given below:
Proforma of Profit & Loss Account

Particulars Particulars
To Gross Loss (if any) transferred By Gross Profit (transferred
from Trading Account — from Trading Account) —
To Staff Salaries — By Discount Received —
To Office Rent — By Commission Received —
To Rates & Taxes — By Dividend —
To Office Lighting and Heating — By Interest Received —
To Printing & Stationary — By Rent from Tenant —
To Bank Charges — By Interest from Bank —
To Insurance — By Interest on Drawings —

To Telephone Charges — By Profit on Sale of Investment —
To Legal Expenses — By Provision for Discount on Creditors —
To Repairs — By Bad Debts recovered —
To Postage & Stamps — By Profit on Sale of Assets —
To Trade Expenses — By Other Incomes —
To Establishment Exps. — By Net Loss (if any) transferred to Capital —
A/c
To Audit Fees —

To Charity & Donations —
To Management Exps. —

To Depreciation on — Contd...
Land & Buildings —
Plant and Machinery —
60 LOVELY PROFESSIONAL UNIVERSITY
Furniture —
To Stable Expenses —
To Directors Fee —
To Bank Charges —
To Interest on Loan —
To Interest on Capital —
To Discount on B/R —
To Sales Tax —
To Advertisement —
To Bad Debts —
To Agents’ Commission —
To Travelling Expenses —
To Free Samples distributed —
To Warehouse Expenses —
To Packing Expenses —
To Brokerage —
To Distribution Expenses —
To Delivery Van Expenses —
To Provision for Bad and Doubtful —
Debts
To Entertainment Expenses —
To Carriage Cutward —
To Loss on Sale of Assets —
To Licence Fees —
To Repairs of Assets & Motor Car
To Loss by Fire
To Conveyance Expenses
To Net Profit (Transferred to Capital
A/c.)
— —