Question

profit and loss account

Answer 1

ANSWER :

❒ Profit and Loss Account :-

According to R. N. Carter, "A Profit and Loss Account is an account into which all gains and losses are collected, in order to ascertain the excess of gains over the losses or vice versa".

• ➬ Profit and Loss Account is a part of the Income Statement as well as the Final Accounts through which the net result of working of the business can be ascertained.

• ➬ The net result, i.e., Net Profit or Net Loss of a business during an accounting period is ascertained with the help of preparating of Profit and Loss Account.

• ➬ A Profit and Loss Account starts with the amount of Gross Profit or Gross Loss brought down from the Trading Account.

• ➬ The balance amount of Profit and Loss Account which is either Net Profit or Net Loss, is transferred to the Capital Account in the Balance Sheet.

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❒ Need of Profit and Loss Account :-

As a part of final accounts or financial statements, there are some needs of preparation of Profit and Loss Account of a business.

• ➬ To ascertain the net profit or net loss : Profit and Loss Account is prepared with the object of ascertaining the net profit or net loss available to the proprietor of a business.

• ➬ To exercise control over expenses : Profit and Loss Account helps in comparison of various expenses with those of the previous years. The percentage of each individual expenses to net profit may be calculated and compared with those of the previous years. Such comparison helps in taking concrete steps for controlling the unnecessary.

• ➬ To compare with previous years' profits : The net profit of the firm as disclosed by the Profit and Loss Account enables the businessman to know whether the business is being conducted efficiently or not by enabling it to compare the current year's net profit with those of the previous years.

• ➬ To help in the preparation of Balance Sheet : A Balance Sheet can be prepared only after ascertaining the net profit or net loss through the preparation of Profit and Loss Account. Hence the Profit and Loss Account helps in the preparation of Balance Sheet at the end date of a particular year.

Answer 2

Answer:

hi let me say the need of profit and loss account

1. ascertainment of net profit or net loss
2. comparison of profit
3. control on expenses
4. helpfull in preparing balance sheet