Profit And Loss Account Format, Statement, and Closing Entries (2024)

Final Accounts for Sole Proprietors - Non-manufacturing

Every company prepares a Profit and Loss Account/statement at the end of the year generally, to get the visibility of the income, earning, expenses and loss incurred in a specific range of period. It is important to prepare Profit and Loss statement because this information helps an organisation to take the right business decision like where should we do the cost-cutting, from where can a business generate more profit and in which part business is suffering the loss. In this article, we will see types of Profit and Loss account and Profit and Loss account format.

Profit and Loss Account/Statement

Types of Profit and Loss

Gross profit/ Gross loss
Net profit/ Net loss

We prepare Trading account to ascertain the Gross profit/ Gross loss. While we prepare Profit and loss account to ascertain the Net profit/ Net loss.

Profit and loss account is made to ascertain annual profit or loss of business. Only indirect expenses are shown in this account. All the items of revenue and expenses whether cash or non-cash are considered in this account.

Understand the concept of Trading Account here in detail.

Only the revenue or expenses related to the current year are debited or credited to profit and loss account. The profit and loss account starts with gross profit at the credit side and if there is a gross loss, it is shown on the debit side.

Profit and Loss Account Format

Particulars	Amount	Particulars	Amount
To Gross loss b/d		To Gross profit b/d
Management expenses:		Income:
To salaries		By Discount received
To office rent, rates, and taxes		By Commission received
To printing and stationery		Non-trading income:
To Telephone charges		By Bank interest
To Insurance		By Rent received
To Audit fees		By Dividend received
To Legalcharges		By Bad debts recovered
To Electricity charges		Abnormal gains:
To Maintenance expenses		By Profit on sale of machinery
To Repairs and renewals		By Profit on sale of investments
To Depreciation		By Net Loss
		(transferred to Capital A/c)
Selling distribution expenses:
To Salaries
To Advertisem*nt
To Godown
To Carriage outward
To Bad debts
To Provision for bad debts
To Selling commission
Financial expenses:
Bank charges
Interest on loan
Discount allowed
Abnormal losses:
To Loss on sale of machinery
To Loss on sale of investments
To Loss by fire
To Net Profit
(transferred to capital a/c)
TOTAL		TOTAL

Items not shown in Profit and Loss Account Format

Drawings: Drawings are not the expenses of the firm. Hence, debit it to the Capital a/c and not to the Profit and loss a/c.
Income tax: In the case of companies income tax is an expense but in the case of a sole proprietor, it is his personal expense. Therefore, debit it to Capital A/c.
Discount: As we know the discount is of two types – a trade discount and cash discount. We deduct Trade discount from the invoice amount and hence do not show it in the books of accounts. On the other hand, we allow a cash discount when the customer pays the amount on a certain date. We show the cash discount in the books of accounts. Thus, we debit it to profit and loss account.
Bad debts: It is the amount which is due from a customer and he does not pay it. We debit this amount to Profit and Loss A/c. In case if the provision is already made for bad bets than it is first written off from it. In case if bad debts are recovered, so it is again. Now it is not credited to the party’s account but should be credited to bad debts recovered account. And it will be shown on the credit side of profit and loss account.

Closing entries

To complete profit and loss account these entries are necessary:

Solved Example For You

Following is the trial balance of PQR company on 31^st March 2018:

Particulars	Amount (Dr)	Amount (Cr)
Opening stock	32000
Purchases	230000
Sales		370000
Return inwards	25000
Return outward		18000
Carriage inwards	8000
Carriage outwards	5000
Rent	36000
Discount allowed	4000
Salaries	48000
Plant and machinery	180000
Furniture	30000
Drawings	9000
Sundry debtors	120000
Sundry creditors		175000
Capital		164000
Cash at bank	25500
TOTAL	727000	727000

Additional information:

Value of the Closing stock is Rs. 63000.

Bad debts of Rs. 5000

Rent received Rs. 6000

Depreciation on:

Plant and machinery @10% and furniture @5%

Prepare profit and loss account for the year ended 31^st March 2018.

Ans:

In the books of PQR company

Trading account

For the year ended 31^st March 2018

Particulars	Amount	Particulars	Amount
To Opening stock	32000	By Sales 370000
To Purchase 230000		Less: return 25000	345000
Less: return 18000	212000	By Closing stock	63000
To carriage inwards	8000
To Gross profit	156000
	408000		408000

Profit and loss account

For the year ended 31^st March 2018

Particulars	Amount	Particulars	Amount
To Carriage outward	5000	By Gross profit	156000
To Rent	36000	By Rent received	6000
To Discount allowed	4000
To Salaries	48000
To Depreciation:	19500
Plant and machinery 18000
Furniture 1500
To Bad debts	5000
To Net profit- transferred to capital a/c	44500
	162000		162000

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Date	Particular		Amount (Dr.)	Amount (Cr.)
1. For items of Expenses	Profit and loss account a/c	Dr.
	To Expenses A/c (individually)
	(Being the accounts of all the expenses closed)
2. For items of Incomes	Incomes A/c (individually)	Dr.
	To Profit and loss account a/c
	(Being the accounts of all the incomes closed
3. In case of profit:	Net profit a/c	Dr.
	To Capital A/c
	(Being net profit transferred)
4. In case of loss:	Capital A/c	Dr.
	To Net Loss A/c
	(Being net loss transferred)