2. Prepare Profit and Loss Account of Sanjay Brothers for the year ended 31st March, 2018 from the following balances.

1) Bank charges ₹22,000

2) Interest (Cr.) ₹16,000

3) Sundry expenses ₹42,000    

4) Insurance ₹35,000

5) Salaries ₹40,000

6) Rates and Taxes ₹13,000

7) Postages ₹8,000

8) Advertisement ₹40,000

9) Rent paid ₹32,000

10) Bad debts ₹10,000

11) Commission (Cr.) ₹17,500

12) Printing & Stationery ₹21,000

13) Loss by fire ₹18,000

14) Discount (Dr.) ₹23,000

15) Discount (Cr.) ₹37,000

16) Misc. Income ₹14,000

17) Depreciation ₹34,000

18) Carriage Outwards ₹60,000

19) Godown Expenses ₹40,000

Note: Gross Profit ₹4,07,500


Solution

In the books of Sanjay Brothers 

Profit and Loss Account for the year ended 31st March, 2018

Particulars 

Amount      (₹) 

Amount         (₹) 

Particulars 

Amount           (₹) 

Amount         (₹) 

 

 

 

By Gross Profit b/d 

 

4,07,500 

To Bank charges 

 

22,000 

By Interest  

 

16,000 

To Sundry exp. 

 

42,000 

By Commission  

 

17,500 

To Insurance  

 

35,000 

By Discount 

 

37,000 

To Salaries 

 

40,000 

To Misc. Income 

 

14,000 

To Rent & Taxes 

 

13,000 

 

 

 

To Postage 

 

8,000 

 

 

 

To Advertisement 

 

40,000 

 

 

 

To Rent paid  

 

32,000 

 

 

 

To Bad debts 

 

10,000 

 

 

 

To Printing & Stationery  

 

21,000 

 

 

 

To Loss by fire 

 

18,000 

 

 

 

To Discount 

 

23,000 

 

 

 

To Depreciation  

 

34,000 

 

 

 

To Carriage Outwards 

 

60,000 

 

 

 

To Godown Exp. 

 

40,000 

 

 

 

To Net Profit c/d 

 

54,000 

 

 

 

 

 

4,92,000 

 

 

 

4,92,000 

 

 

4,38,000 

 

 

 

 

 

Explanation

1) Profit and Loss Account 
    Profit and Loss Account is prepare on the basis of indirect expenses and indirect incomes of the Business. 
The purpose for preparing Profit and Loss Account is to ascertain Net Profit or Net Loss. 
Profit and Loss Account is a Nominal Account.

2) The Debit Side of Profit and Loss Account includes all the indirect expenses such as the following in the Practical Problem Q.2
ⅰ] Bank charges it is an indirect expense for the business.
ⅱ] Sundry expenses. Sundry expenses means it is the total of all expense which is written in short of Sundry expenses.
ⅲ] Insurance. Insurance paid is an indirect expense.
ⅳ] Salaries. Salaries paid to staff is also an indirect expense.
ⅴ] Rent and Taxes. 
ⅵ] Postage.
And others expenses.....

3) The Credit Side of Profit and Loss Account includes indirect incomes such as the following in the Practical Problem Q.2
 ⅰ] Interest (Cr.). Interest received is an indirect expense for the business.
ⅱ] Commission (Cr.). Commission is also an indirect income.
ⅲ] Discount (Cr.). Discount received is an indirect income.
ⅳ] Miscellaneous Income. Misc. Income is an income from other sources which is not mentioned.

4) Net Profit or Net Loss.
When the Credit side account is greater than Debit side, it is called Net Profit. 
When Debit side is greater than credit side than it is called  as Net Loss.
Net Profit or Net Loss is transferred to Capital Account.

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