Prepare Profit and Loss Account of Sanjay Brothers for the year ended 31st March, 2018 from the following balances.

1) Bank charges ₹22,000

2) Interest (Cr.) ₹16,000

3) Sundry expenses ₹42,000    

4) Insurance ₹35,000

5) Salaries ₹40,000

6) Rates and Taxes ₹13,000

7) Postages ₹8,000

8) Advertisement ₹40,000

9) Rent paid ₹32,000

10) Bad debts ₹10,000

11) Commission (Cr.) ₹17,500

12) Printing & Stationery ₹21,000

13) Loss by fire ₹18,000

14) Discount (Dr.) ₹23,000

15) Discount (Cr.) ₹37,000

16) Misc. Income ₹14,000

17) Depreciation ₹34,000

18) Carriage Outwards ₹60,000

19) Godown Expenses ₹40,000

Note： Gross Profit ₹4,07,500

Solution：

In the books of Sanjay Brothers 

Profit and Loss Account for the year ended 31st March, 2018

Particulars	Amount      (₹)	Amount         (₹)	Particulars	Amount           (₹)	Amount         (₹)
			By Gross Profit b/d		4,07,500
To Bank charges		22,000	By Interest		16,000
To Sundry exp.		42,000	By Commission		17,500
To Insurance		35,000	By Discount		37,000
To Salaries		40,000	To Misc. Income		14,000
To Rent & Taxes		13,000
To Postage		8,000
To Advertisement		40,000
To Rent paid		32,000
To Bad debts		10,000
To Printing & Stationery		21,000
To Loss by fire		18,000
To Discount		23,000
To Depreciation		34,000
To Carriage Outwards		60,000
To Godown Exp.		40,000
To Net Profit c/d		54,000
		4,92,000			4,92,000
		4,38,000

 

Explanation：

1) Profit and Loss Account 

    Profit and Loss Account is prepare on the basis of indirect expenses and indirect incomes of the Business. 

The purpose for preparing Profit and Loss Account is to ascertain Net Profit or Net Loss. 

Profit and Loss Account is a Nominal Account.

2) The Debit Side of Profit and Loss Account includes all the indirect expenses such as the following in the Practical Problem Q.2

ⅰ] Bank charges it is an indirect expense for the business.

ⅱ] Sundry expenses. Sundry expenses means it is the total of all expense which is written in short of Sundry expenses.

ⅲ] Insurance. Insurance paid is an indirect expense.

ⅳ] Salaries. Salaries paid to staff is also an indirect expense.

ⅴ] Rent and Taxes. 

ⅵ] Postage.

And others expenses.....

3) The Credit Side of Profit and Loss Account includes indirect incomes such as the following in the Practical Problem Q.2

 ⅰ] Interest (Cr.). Interest received is an indirect expense for the business.

ⅱ] Commission (Cr.). Commission is also an indirect income.

ⅲ] Discount (Cr.). Discount received is an indirect income.

ⅳ] Miscellaneous Income. Misc. Income is an income from other sources which is not mentioned.

4) Net Profit or Net Loss.

When the Credit side account is greater than Debit side, it is called Net Profit. 

When Debit side is greater than credit side than it is called  as Net Loss.

Net Profit or Net Loss is transferred to Capital Account.