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Closing Profit and Loss Account

The reward for the owner’s risk is profit. In the case of profit, the amount of profit should be added to the capital and in case of loss, it should be reduced from the capital.

 

If the debit is greater, it indicates excess of indirect expenses over incomes which reflects the loss termed as “Net Loss”

 

Accounts to be Closed

Entries to be Passed

Net loss

Capital A/c              Dr.

   To Profit and Loss A/c


If credit is greater, it indicates excess of indirect incomes over indirect expenses which reflects profit termed as “Net Profit”

 

Accounts to be Closed

Entries to be Passed

Net profit

Profit and Loss A/c              Dr.

   To Capital A/c

 

Note: Both the Trading and the Profit and Loss account, or prepared to ascertain the financial results for the entire year, so heading must be closed with the words, ‘for the year ending..................’





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