Meaning of Profit and Loss Account

Meaning of Profit and Loss Account: A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period. Similar to the Trading Account, the Profit and Loss Account is also a nominal account in which all the expenses or losses are debited and all the incomes or gains are credited. This account begins with a recording of the gross profit (or gross loss) depicted by the Trading Account.

After this, all the indirect expenses are debited and all indirect incomes are credited to this account. Indirect expenses are those expenses that are not directly related to the manufacturing and production of goods and services. These are incurred for making the finished goods ready for sale. While on the other hand, indirect incomes are those incomes that are not directly earned from the operating activities of business operations. The excess of credit side over its debit side of Profit and Loss account is regarded as Net Profit. In contrast, excess of debit side over its credit side is regarded as Net Loss.


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Trading Account

Trading Account is an account that is prepared to ascertain the trading results of a firm in form of gross profit earned or gross loss incurred during an accounting period.

Users of Financial Statements

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Financial Statements

Financial statements reveal the profitability and financial position of a business at the end of the accounting year. It provides financial information to various accounting users that

What is a Promissory Note?

A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer.