Tuesday 25 September 2012

Explanation to the main items in Profit and Loss Account


1.Salaries :- It is the remuneration paid to the employees those who have indirectly participated in the production. Ex: Office staff. These salaries are to be shown on the debit side of the Profit and Loss a/c. This account may sometimes include salaries of selling and distribution staff.

2. Rent, Rates and Taxes :- This includes rent incurred on office, warehouse, showroom, taxes paid to local bodies and Government. This item is an expenditure. Hence, it appears in the debit side of the Profit and Loss a/c.

3.Insurance :- It is premium paid to the Insurance company to cover the risk against fire, theft of material and assets of the firm. Since, this premium is an expenditure, it is to be posted in the debit side of the Profit and Loss a/c. If the firm pays policy premium on the personal life of the proprietor, then it has to be debited to capital a/c (deducted from capital) but not to be debited Profit and Loss a/c.


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