Preparation of the profit and loss account

May 22, 2018 | By admin4u | Filed in: Uncategorized.

Explanation of certain items of the profit and loss account

1. Wages

Wages are paid for the services of employees and are charged indirectly to the profit and loss account. If the payment for the owner or partners is to be indicated separately as it requires special treatment at the time of income tax assessment

. Wages and Salaries

When wages bill includes wages, which are treated as indirect inputs and are reported as revenue

. Rental Fee

The rent of the exhibition hall of the office is indirectly charged, and therefore the profit and loss account is charged. However, the rental fee of the factory is charged to a commercial account. If a part of the building has been leased, the rent received shall be shown as a separate item on the credit side of the profit and loss account

. Prices and taxes

This should be used by local authorities to cover public expenditure. Indirect expenditure is included on the liability side of the income statement.

5th Interest

Interest on loans, overdrafts or overdue receivables is payable to the enterprise. This is an indirect release; thus charged to the profit and loss account. The interest rate of a loan for deposits made by a company for deposits is the income of the enterprise and thus credited to the income statement.

If the enterprise has made the owner or partners capital privileged, it must also be debited separately, because this item is treated specially when the income tax is established

. Commission

Sometimes in business, agents are appointed for sale, who are paid as commissions as commissions. Thus, these costs are shown on the debit side of the income statement. Sometimes commissions are also paid when purchasing goods, such as the costs being charged on the trading account. Sometimes the company can also act as an agent in other business houses and receive commission in these cases. The commission received is shown on the credit side of the income statement

. Commercial Expenses

These are also referred to as "other expenses". Commercial expenditures are expenditures of a kind for which no separate account is desirable. Trade costs are not accounted for.

8th Fixes

Repair of plants, machines and buildings addresses indirect costs and is charged to the profit and loss statement.

ninth Travel expenses

Unless otherwise indicated, travel expenses shall be considered as indirect costs and shall be charged to the profit and loss account. Horse and stable expenditure

The costs of horses and wages paid for wages are treated as indirect costs and are charged to the profit and loss account

. Apprentice Premium

This is the amount that is charged to the persons to whom the training is provided by the business. This is revenue and is credited to the income statement. In the event that the apprenticeship fee is due for two to three years, the amount will be divided by the number of years and each year the income statement will be credited with the income.

12th Bad Debts

This is the amount the trader could not recover due to credit sales. This is a business loss and is therefore charged in the profit and loss account.

13th Life insurance premium

If the insurance premium is paid to the business owner's life insurance policy; according to his drawings and presented below the capital account. It should not be included in the profit and loss account.

14th Insurance Premium

If the insurance premium account appears in the experimental balance, this means business insurance. This is the profit and loss statement. The insurance premium for purchased goods, factory buildings and factory machinery is recognized as direct costs and is placed on a trading account

. Income Tax

The paid commercial income tax is recognized as a person's cost and is deducted from the capital account. For companies, income tax is treated differently

16. Discount is allowed and received

Discount is a reward for late payment. I am convinced that the received and the discount are given individually on the borrowing and deposit side of the settlement account rather than presenting the net balance of the account

. Depreciation

Depreciation is a loss due to the use of fixed assets in the business. Usually it is charged in the percentage of the profit and loss account. Students should be cautious about the depreciation rate. If the rate is not included annually, the ratio shall be deducted regardless of the bill. This is very important if the reporting period is less than one year. On the other hand, if the depreciation rate is annually, depreciation is calculated on assets, taking into account the period during which the asset is used during the business year. In the course of the year, when adding assets, it is advisable to ignore the added depreciation if the dates of the additions are not given. The same rule applies to the sale of assets over the year.

18th Stock at the end of the test balance.

It is important to emphasize the rule that the equilibrium in the experimental balance is only one and only one. It can be either trading account, profit or loss statement or balance sheet. Since the kit is a tool, it will be scanned. On the other hand, as long as the stock is traded, this should be taken into account and should therefore be taken to the asset side of the balance sheet.

Source by Anil Kumar Gupta

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