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2. To know efficiency of a business
3. To know the amount of indirect expenses during a year

4. To determine the relationship between net profit/loss and indirect expenses
5. To determine the relationship between net profit and gross profit
6. To prepare a basis for balance sheet
7. To compare the result within and out of the business for improvement

8. To provide the ground for financial analysis
Advantages and Importance

The advantages of profit and loss account are as follows:

1. Helps to ascertain net profit or net loss for the given period
2. Helps to find out total amount of indirect expenses and income for the period

3. Helps to determine relations between gross profit/loss and net profit/ loss
4. Helps to control the cost

5. Helps to prepare plans and policies
6. Helps to take the decisions on the basis of result

7. Provides data for comparative study
8. Helps to analyze the financial data and to make decision

Items to be debited to profit and loss account

i. Gross loss: If trading account shows a gross loss, it is debited to the profit and
loss account.

ii. Office and administrative expenses: These are also known as operating
expenses. The expenses incurred in course of daily administration of a business
firm in office are known as office and administrative expenses. These include
office salary, depreciation, telephone charge, legal charges, lighting, printing
and stationery, general expenses, audit fees, postage and stamp, bank charge,
tax, internet, insurance, repair and renewal, etc.

iii. Selling and distribution expenses: The expenses incurred for selling and
promotion of goods are known as selling and distribution expenses. These
are also known as operating expenses. Commission to agents, advertisement,
salesmen's salary, warehouse expenses, carriage outwards, free sample, bad

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