Preparation of

Profit & Loss Account and Balan

उƣर Ĥदेश सहकारȣ Ēाम fवकास बकɇ िल० Ĥ

Stages of Accoun
1. Cash Book
2. Journal

3. Ledger
4. Trial Balance
5. Trading Account
6. Profit & Loss Account
7. Balance Sheet

3 types of A/c & Rules of dou

1. Personal A/c : Debit the receiver & Credit the g
2. Real A/c : Debit what comes in & Cred
out
2. Real A/c : Debit what comes in & Cred
out

3. Nominal A/c : Debit the expenses and losses

incomes and gains
nt and Balance Sheet
बकɇ िल० Ĥिश¢ण कɅ द, लखनऊ

f Accounting
Double entry Book
Keeping
 Final Accounts

ules of double entry

r & Credit the giver
omes in & Credit what goes
omes in & Credit what goes

penses and losses & Credit the

 Ex: Different accounting trea
Transaction A/c involved
1. Wage paid Wages A/c
Cash A/c
2. Dividend received Cash A/c
Dividend A/c
3.Building purchased Building A/c
Cash A/c
4. Furniture sold Cash A/c
Furniture A/c
5. Outstanding rent Rent A/c
Outst. rent A/c
6. cash received from X Cash A/c
X A/c
7. Capital added Cash A/c
Capital
 Stages of Double Entry Sy
Stage 1: All transactions are recorded in the Journal (or) Sub
take place.These books are called the
books of original entry (entering).

Stage 2: All entries in the journal (or) subsidiary books are po

appropriate ledger accounts (posting).
Accounts are closed at the end of the period to find out
balances and a list of such balances is prepared (trial b
Stage 3: Final accounts are prepared (Trading, P&L and B/s)
 Trading Account
How to prepare the
Trading Account
Trading Account
 It is a statement prepared to highlight
profit) made during a particular period.

 Gross profit arises from sale & purchase a

 Gross profit is not the final profit as it doe
expenses of the business during a period (oth
not covered yet..for example: Insurance p
Trading Account
 Trading account considers only the
expenses occur before the point of sale
 Now what are direct expenses? Ex
identified with each unit of output are

 Purchase,transportation, convers
all are examples of direct costs.
accounting treatments
Nature of A/c Debit / Credit
Nominal Debit
Real Credit
Real Debit
Nominal Credit
Real Debit
Real Credit
Real Debit
Real Credit
Nominal Debit
Personal Credit
Real Debit
Personal Credit
Real Debit
Personal Credit
Double Entry System
d in the Journal (or) Subsidiary books as and when they

subsidiary books are posted to

.
of the period to find out its
ances is prepared (trial balance).
(Trading, P&L and B/s)
ing Account
to prepare the
ng Account ?
unt
repared to highlight the trading result (gross
articular period.

om sale & purchase activity.

he final profit as it does not consider all
ss during a period (other than trade expenses are
xample: Insurance premium paid)
unt
considers only the direct expenses and
ore the point of sale.
rect expenses? Expenses which can be
unit of output are called direct expenses.

rtation, conversion, packing charges

direct costs.
 Trading Account for the year ended 31-03-2
Particulars Amount Amount
Rs. P Rs. P

To opening stock XXX

To purchases XXX

Less: returns XXX XXX

To Direct expenses XXX

To Gross profit c/d

Total XXXX
 How to prepare Profit & Lo
 It is a statement prepared to know the
loss occurred in a business during a p

 Net Profit / Loss = Gross Profit / Loss

(plus) All non trading income (minus) All
expenses
  Net Profit / Loss = Gross Profit / Loss
(plus) All non trading income (minus) All
expenses

Preparing the Profit & Loss Acco

(Points to remember)
Title: Profit and Loss Account of M/s. X & Co. for the
Sides :Two sides (Debtor & Creditor) Expenses : Sho
Revenues: Shown in the right side (Cr)
To & By : Dr. side starts with To & Cr. Side starts w
Net profit: If Dr. side total is less than the Cr. Si
called as net profit (credit balance).
Net loss : If Cr. side total is less than the Dr. Si
called as net loss (debit balance).
ount for the year ended 31-03-2019
Particulars Amount Amount
Rs. P Rs. P

By sales XXX

Less: returns XXX XXX

By Closing stock XXX

By Gross loss c/d

Total XXXX
re Profit & Loss A/c?
pared to know the net profit (or) net
usiness during a particular period.

oss Profit / Loss

income (minus) All non trading
oss Profit / Loss
income (minus) All non trading

t & Loss Account

er)
of M/s. X & Co. for the year ended 31-3-2014
reditor) Expenses : Shown in the left side (Dr)
de (Cr)
To & Cr. Side starts with By
s less than the Cr. Side total, the difference is
ce).
s less than the Dr. Side total, the difference is
 Profit & Loss Account of M/s X & Co. for the year ended 31-03-2019
Dr

Particulars Amount Amount

Rs. P Rs. P
To gross loss b/d (transferred
from trading A/c) XXX

Other office expenses

To salary XXX
To rent XXX
To electricity XXX
To postage & telegrams XXX
To legal charges XXX
To insurance premium XXX
To audit fees XXX
Selling & distribution expenses
To advertisement XXX
To salesmen salary / TA XXX
To godown rent XXX
To carriage outwards XXX
Financial expenses
To interest paid XXX
To discount given XXX
To Net Profit transferred to capital
account XXX

Total XXXX
 How to prepare a Balance
 It is a statement prepared to know the financial po
financial strengths & weakness of a business on a giv
 It is revealed by the assets & liabilities
 Assets: All tangible and intangible items wh
value
 Liabilities: All dues and loans payable
 Assets (-) Liabilities = Capital
(This would show the strength or net worth of the bu
 Preparing the Balance Sheet
remember)
Title : Balance Sheet of M/s. X & Co. as on 31-03-2014
Sides :Two sides (Liabilities & Assets)
Liabilities: Shown in the left
side

Asset : Shown in the right

s side

Tota : Both sides should be equal (if they are not equal,
l can
understand that the Balance Sheet is not correct)
the year ended 31-03-2019
Cr

Particulars Amount Amount

Rs. P Rs. P
By gross profit b/d (transferred
from trading A/c ) XXX

Other revenues
By rent received XXX
By interest received XXX
By discount received XXX
By commission received XXX
By dividend received XXX
By miscellaneous income XXX
By Net Loss transferred
to capital account XXX

Total XXXX
re a Balance Sheet?
o know the financial position of a business (i.e.,
ss of a business on a given date)
& liabilities
intangible items which have a realisable

ns payable
tal
h or net worth of the business)
the Balance Sheet (Points to
)
Co. as on 31-03-2014
sets)
qual (if they are not equal, we

lance Sheet is not correct)

 Example 1: From the following transactions of Woodcraft Com
Prepare the journal entries, ledger postings and tr

Sep 1: Began business by investing cash Rs. 10,000

4 : Paid 2 month rent in advance for a shop Rs. 2000
5 : Bought equipment for Rs.1200
7 : Bought supplies on credit Rs.700
10 : Received payment for remodeling a kitchen Rs. 8600 14 : Paid f
1400
17 : Received payment for furnishing an office room Rs. 11200 23 : B
13100
25 : Paid wages to assistant Rs. 1500
28 : Paid electricity bill Rs. 240
29 : Received part payment from customers against 23 bill Rs. 4800
rd

30 : Paid dividend Rs. 2500

ransactions of Woodcraft Company of Mr. Ganesh
ntries, ledger postings and trial balance.

h Rs. 10,000
hop Rs. 2000

a kitchen Rs. 8600 14 : Paid for newspaper advertisement Rs.

n office room Rs. 11200 23 : Billed customers for work done Rs.

mers against 23 bill Rs. 4800

rd
 Journal Entry
Date Particulars

2014 Cash A/c Dr

Sep 1 To Share capital A/c
(Cash Invested)

Prepaid rent A/c Dr To Cash A/c

4 (Rent paid in advance)

Equipments A/c Dr To Cash A/c

5 (Equipment bought for Cash)

7 Supplies A/c Dr
To Creditor A/c
(Bought supply on credit)

10 Cash A/c Dr
To Revenue from services A/c
(Cash received for kitechen remodeling)

Advt. Expenses A/c Dr To Cash A/c

14 (Paid advt charges)
ntry
Amount Amount
Rs. P Rs. P
10000 10000

2000 2000

1200 1200

700 700

8600 8600

1400 1400
 Journal Entry
Date Particulars

17 Cash A/c Dr
To Revenue from services A/c
(Cash received for office designing)

23 Debtors A/c Dr
To Revenue from services A/c
(cash received for work done)

25 Wage A/c Dr
To Cash A/c
(Paid asst wage)

Electricity charges A/c Dr To Cash A/c

28 (Paid elec. bill)

29 Cash A/c Dr
To Debtor A/c
(Cash received from debtors)

30 Dividend A/c Dr
To Cash A/c
(Paid dividend)
LEDGER POSTI
ntry
Amount Amount
Rs. P Rs. P
11200 11200

13100 13100

1500 1500

240 240

4800 4800

2500 2500
OSTING
 Capital A/c
Date Particulars JF No

Sep 1 Cash
Total
Cash A/c
Date Particulars JF No

Sep 1 Share capital

4 Prepaid rent
5 Equipment
10 Revenue from services
14 Advt.expenses
17 Revenue form services
25 Wage paid
28 Elec. Bill paid
29 Sundry debtors
30 Dividend paid
Total
c
Debit Credit Balance
Rs. P Rs. P Rs. P
10000
10000

Debit Credit Balance

Rs. P Rs. P Rs. P
10000
2000
1200
8600
1400
11200
1500
240
4800
2500
 Rent A/c
Date Particulars JF No

Sep 4 Cash
Total
Equipment A/c
Date Particulars JF No

Sep 5 Cash
Total

Date Particulars JF No

Sep 7 Cash
Total
Supplies A/c
 Debit Credit Balance
Rs. P Rs. P Rs. P
2000 2000
2000
A/c
Debit Credit Balance
Rs. P Rs. P Rs. P
1200 1200
1200

Debit Credit Balance

Rs. P Rs. P Rs. P
700 700
700
 Sundry Creditor A/c
Date Particulars JF No Debit
Rs. P
Sep 7 Cash
Total
Revenue from Services A/c
Date Particulars JF No

Sep10 Cash
17 Cash
23 Cash
Total

Date Particulars JF No
Date Particulars JF No

Sep 14 Cash
Total

Advertisement A/c
r A/c
Debit Credit Balance
Rs. P Rs. P Rs. P
700 700
700

Debit Credit Balance

Rs. P Rs. P Rs. P
8600 8600
11200 11200
13100 13100
32900

Debit Credit Balance

Rs. P Rs. P Rs. P
1400 1400
1400
 Sundry Debtor A/c
Date Particulars JF No Debit
Rs. P
Sep 23 Revenue from service 13100
29 Cash for work done
Total
Salary A/c
Date Particulars JF No Debit
Rs. P
Sep 25 Cash
Total
Date Particulars JF No Debit
Rs. P
Sep 28 Cash 240
Total
Date Particulars JF No

Sep 30 Cash
Total

Electricity Bill A/c

Dividend A/c
A/c
Debit Credit Balance
Rs. P Rs. P Rs. P
13100 13100
4800 4800
17900

Debit Credit Balance

Rs. P Rs. P Rs. P
1500 1500
1500
Debit Credit Balance
Rs. P Rs. P Rs. P
240 240
240
 Debit Credit Balance
Rs. P Rs. P Rs. P
2500 2500
2500
 Trial Balance, Sep 30, 2014
Particulars

Capital
Cash

Rent
Equipment
Supplies
Creditor
Revenue
Advertisement
Sundry Debtors
Salary
Electricity
Dividend
ance, Sep 30, 2014
Debit Credit
Rs. P Rs. P
10000
25760

2000
1200
700
700
32900
1400
8300
1500
240
2500
43,600 43,600
 Example 2: From the details taken from Trial Balance of Mr. Ravi, pr
accounts for the year ending 31 December 2014
st

Particulars

Stock on 1.1.2014

Purchase & Sales

Returns

Carriage

Rent

Interest

Salary

General expenses

Discount

Insurance
The closing stock on 31st Dec 2014 is Rs.5000
rom Trial Balance of Mr. Ravi, prepare final
cember 2014
Dr Rs. Cr Rs.

2000

20000 30000

2000 1000

2000

1000

2000

2000

1000

500

500
Rs.5000
 Trading Account for the year ended 31-12-2014
Particulars Amount Amount
Rs. P Rs. P
To opening stock 2000
To purchases 20000
Less: Returns 1000 19000

To Carriage 2000
To Gross Profit c/d 10000
Total 33000
e year ended 31-12-2014
Particulars Amount Amount
Rs. P Rs. P
By sales 30000
Less: returns 2000 28000

By Closing stock 5000

Total 33000
 From the details taken from Trial Balance of Mr. Ravi, prepare final a
the year ending 31 December 2014
st

Particulars

Stock on 1.1.2014

Purchase & Sales

Returns

Carriage

Rent

Interest

Salary

General expenses

Discount

Insurance
The closing stock on 31st Dec 2014 is Rs.5000
alance of Mr. Ravi, prepare final accounts for

Dr Rs. Cr Rs.

2000

20000 30000

2000 1000

2000

1000

2000

2000

1000

500

500
Rs.5000
 Profit and Loss Account for the year ended 31-12
Particulars Amount Amount
Rs. P Rs. P
To Rent 1000

To Salaries 2000

To General expenses 1000

To Discount 1000
To Insurance 500
To Net Profit taken to 8000
Capital Account

Total 12500
s Account for the year ended 31-12-2014
Particulars Amount Amount
Rs. P Rs. P
By Gross Profit b/d 10000

By Interest 2000

By Discount 500

Total 12500