Page 141 - Account 10

iii. Control Over Expenses and Losses
Profit and Loss A/c enters all the administrative and office expenses, and selling
and distribution expenses under separate heads and thus the expenses can be studied in
order of heads and thus, a proper control over the expenses and elimination of wastage,
leakage etc. can be done in time. Furthermore, the net profit and gross profit can be
studied separately, with the indirect expenses to have a general evaluation of expenses.
iv. Comparison of Figures
A profit and Loss A/c begins with gross profit on credit side or gross loss on debit side.
It ascertains the net profit/loss finally, as the balancing figure. Thus, with the help of a profit
and loss A/c, the gross profit/loss and the net profit/loss can be compared for the same
year. Similarly, it helps to compare the net profit with the sales of the year. Furthermore, the
net profit of the current year can be compared with that of the previous years and deviations
in such profits may be analysed and improvements can be made if necessary.

v. Helpful in the Preparation of Balance Sheet
A balance sheet is prepared at the last step of final accounts. The net profit or loss, as
the case may be, resulted from profit and loss A/c, is transferred to the capital A/c in the
balance sheet. The net profit is added to the capital and net loss is deducted. There will be
either a net profit or sometimes a net loss in a business concern. The profit and loss A/c
helps to prepare balance sheet by transferring the profit or loss to the capital account.

Points to Remember

i. Finding out net profit/loss ii. Facilitating tax assessment iii. Control over expenses and losses
vi. Comparison of figures v. Helpful in the preparation of balance sheet

Debit Side Items of Profit and Loss A/c
i. Gross Loss
Gross loss is a debit balance of a trading A/c i.e. the balancing figure on the credit
side and, thus, it is always debited in the profit and loss A/c “To Gross loss b/d”. But in
most of the firms, generally gross profit takes place, which is transferred to the credit side
of the profit and loss A/c.
ii. Office and Administrative Expenses
All the expenses of revenue nature i.e. the annual expenses, which are incurred in
course of the general office and administrative performance fall under this head. These
expenses are of indirect nature. These are also, termed as management expenses and are
debited in profit and loss A/c. The examples of such expenses are:
Salary Bank charges Rent, rates and taxes
Audit fees Lighting and heating Printing and stationery
Telephone charges General expenses Postage and telegrams
Trade expenses Office expenses Legal charges
Administrative expenses

140 Aakar’s Office Practice and Accountancy - 10 Final Accounts 141