SS1 Second Term Financial Accounting Lesson Note – Profit and Loss Account

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Week 5

Topic:             Profit and Loss Account

Contents:

• Profit and Loss Account
• Identification of profit and Loss Account items
• Format or Layout
• Preparation of Profit and Loss
• Determination of Net profit or loss

Sub-Topic 1:

Profit and Loss account items.

Profit and Loss account is the account prepared by a business organization to show the net profit or net loss. On the debit side, it shows the expenses incurred by an organization and on the credit side the Gross Profit brought down from trading and other gains. Finally, the profit is carried to the capital account. After all expenses have been deducted from Gross profit, the net profit on the debit side is arrived at which is to be taken to the balance sheet.

Some major items in profit and loss account are identified:

1. Expenses
2. Revenue
3. Profits: i. Gross Profit; ii. Net Profit
4. Net loss
5. Rent receivable
6. Rent payable
7. Goods stolen

Expenses: These are total amount paid or to be paid for resources used in the accounting period, namely:

1. Discount allowed
2. Telephone
3. Lighting
4. Legal charges
5. General expenses
6. Carriage outwards
7. Postage
8. Insurance
9. Advertising
10. Rent and Rates
11. Salaries and payable
12. Commission payable

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