Profit and Loss Account Proforma

Profit and Loss Account is prepared in order to discern whether the firm has made net profit or suffered net loss for a given accounting period. This account deals with indirect expenses such as administrative, selling and distribution expenses and the like. Profit and Loss Account starts where trading account ends; in other words it starts with gross profit on the credit side brought forward from the trading account . In case of gross loss brought forward from the trading account, profit and loss account begins with gross loss as the first item on the debit side.

All the indirect/running expenses, incurred on selling and distribution of the goods and the general administration of the business, are listed on the debit side while all the items of income and gain are listed on the credit side. When the credit side (revenue) exceeds the debit (expenses) side, the difference is net profit. But, if the debit side exceeds the credit side, the difference is net loss. Profit and loss account is net profit thus increases the capital; the net loss is deducted from the capital account(s) in the balance sheet and thus decreases the capital.

The following items are debited in the Profit and loss account:

• Administrative Expenses including Office Salaries, Office Rent, Office Lighiting, Printing, Direcor’s Fees, Telephone Rent, Postage, Insurance, etc.
• Sales and Distribution Expenses including Salesmens salary, Commission, Travelling expenses, Advertising, Packing expenses,  Royalty, etc.
• Financial Expenses including Interest on loan/Capital, Cash Discount Allowed, Bad Debts, Bank Charges, etc.
• Depreciation of Assets and various provisions.
• Other Expenses and Losses including Loss on Sales of Fixed Assets, Loss by Fire, by Theft, by Accident, etc.
• Taxes including Sales Taxes, Income Taxes etc.

The following items are credited in the Profit and Loss Account 

• Cash Discount Received
• Interest Received
• Rent Received
• Gain on Sale of Fixed Assets
• Apprentice Premium
• Dividend Received

Note: The household and personal expenses of the proprietor paid by the firm do not appear in the profit and loss account. Rather these are treated as personal drawings of the proprietor and are deducted from the capital in the balance sheet.

Proforma of Profit and Loss Account

Debit	Proforma of Profit and Loss account			Credit
Particulars		Rs	Particulars	Rs
Trading Account (for gross loss)			Trading Account (for Gross Profit)
Indirect/office running expeses			Income and Gain
Rent			Cash Discount Received
Lighting			Interest Received
Salaries			Rent Received
Insurance			Gain on Sale
Sundry/General Expenses			Bonus Received
Printing and Stationery			Income on Investment etc.
Repair			Capital Account
Advertaising			(Transfer of Net Loss)
Commission Paid
Cash Discount Allowed
Motor Expenses
Warehouse Rent/Insurance
Packing Expenses
Depreciation
Provision for Doubtful Debts
Interest on Loan
Loss on Sale etc,
Capital Account
(Transfer of Net Profit)
Total			Total

Note: 1. Either gross profit or gross loss as opening balance will be reflected.

         2. Similarly, the ending balance will also reflect either net profit or net loss.