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Profit and Loss Account

Profit and Loss Account is a nominal account. It is prepared for the entire year. All indirect expenses are debited to Profit and Loss account and indirect incomes are credited to Profit and Loss Account.

It is prepared to ascertain the Net profit for the current accounting year. It is prepared on accrual basis. All expenses related to the current year, whether paid or payable, should be debited. All incomes related to the current year, whether received or receivable, should be credited

Example 1: Administrative expenses include: Salaries paid to those working in office, rent and rates for the office premises, legal expenses, printing and stationery etc.


Example 2: The selling and distribution expenses include: Commission to agents, advertising, warehousing expenses, bad debts, freight and carriage on sales etc.


Note: All items related to the current year are shown in Profit and Loss Account, irrespective of cash receipts or payments.

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