what are rules of making profit and loss account?
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What is Profit & Loss Account? Profit & Loss Account is part of final accounts, prepared by a business firm to know the net profit of the business activities during a particular period.
Profit and Loss Account is different from Trading Account because Trading account shows only the gross profit while profit and loss account shows net earnings of the business firm. In profit and loss account all indirect expenses and indirect incomes are shown. After preparing trading account the decision is taken regarding the costing of products but after preparing profit and loss account decision is taken in respect to control the expenditures to maximize the profitability of the firm. In short, both statements are very important for a business firm.
Profit and Loss Account is different from Trading Account because Trading account shows only the gross profit while profit and loss account shows net earnings of the business firm. In profit and loss account all indirect expenses and indirect incomes are shown. After preparing trading account the decision is taken regarding the costing of products but after preparing profit and loss account decision is taken in respect to control the expenditures to maximize the profitability of the firm. In short, both statements are very important for a business firm.
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