Question

Profit and Loss Account shows the financial position of the entity.
Statement is True or False.​

Answer 1

ANSWER :

★ False

• ✎ Profit and Loss Account shows the financial position of the entity - This statement is False.

• ✎ Correct Statement :- Balance Sheet shows the financial position of the entity. Or, Profit and Loss Account shows the Net Profit/Net Loss of the entity.

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EXPLANATION :

❒ 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.

Answer 2

Answer:

False.

Explanation:

The financial position of a business is ascertained by the balance sheet and not the profit and loss account.

The profit and loss account is prepared to calculate net profit or loss of the business.