Page 98 - Office Practice and Accounting 10

debt, sales tax, carriage on sales, warehouse rent, delivery van expenses, packing
and packaging expense, delivery charge, etc.

iii. Financial expenses: Expenses spent for the use of finance are called financial
expenses. These include interest on capital, discount allowed, bank charges,
charges on bills discounted, etc.

v. Other indirect expenses: The expenses such as loss on assets by accident,
provision for bad and doubtful debt, discount on debtors, loss on sale of fixed
assets etc.

Items to be created to profit and loss account

1. Gross profit: If trading account shows a gross profit, it is credited to the profit

and loss account
2. Indirect income and gains: All the incomes that are generated are shown in the
credit side of profit and loss account, such as commission received, discount
received, interest received, bad debt recovered, rent received and any other
income received.

Difference between trading and profit and loss account

Trading Account Profit and Loss Account
• It is prepared to find out gross • It is prepared to ascertain net profit
profit or gross loss. or net loss
• It is prepared to make the basis for • It is prepared after trading account.
profit and loss account. • It includes indirect expenses,
• It includes direct expenses and incomes and gross profit or loss.
income. • It reflects the efficiency in respect to
• It measures the efficiency in respect all indirect incomes and expenses.
to purchase and sales. • Its result (net profit/loss) is
• Its result(gross profit/loss) is transferred to balance sheet.
transferred to profit and loss
account.

92 Office Practice and Accounting 10