net profit or net loss. Accountancy - Tutorial note The expenses which are not related to the business are not shown in the profit and loss account. Examples are personal expenses of the proprietor such as domestic and household expenses of the proprietor, income-tax and life insurance premium of the proprietor, etc. These expenses are classified as drawings by the proprietor and are deducted from capital on the liabilities side of the balance sheet if they are paid out of business funds Only revenue receipts and revenue expenses are shown in the trading and profit and loss account.
Capital receipts, capital gains, capital expenditure and capital losses are not shown in trading and profit and loss account. That part of capital items that relate to that accounting period only are shown. For example, depreciation on fixed assets. Purchase of fixed asset is a capital expenditure.
But depreciation is a revenue item which relates to the use of the fixed asset in the current accounting period. Student activity Think: A furniture trader takes some furniture from his business, for his domestic use. How do you treat this transaction? Illustration From the following information, prepare profit and loss account for the year ended 31st March, .
Gross profit b/d Carriage outward Office rent Office stationery Distribution expenses , , , , , , Advertisement expenses Bad debts Dividend received Discount received Rent received , , , , , Solution Profit and Loss Account for the year ended 31st March, Cr. To Carriage outward To Office rent To Office stationery To Distribution expenses To Advertisement expenses To Bad debts To Net profit transferred to capital account , , , , , , , , By Gross profit b/d By Dividend received By Discount received By Rent received , , , , , , , , , Accountancy - Illustration From the following information, prepare profit and loss account for the year ended 31st December, . Gross profit b/d Freight outward Packing charges (on sales) Salesmen commission paid Promotional expenses Office telephone expenses Bad