Items shown on the credit side of profit and loss account are as follows: (i) Gross profit The first item on the credit side of profit and loss account is the gross profit brought down from the trading account if there is gross profit. (ii) Other incomes and gains All items of indirect incomes and gains are shown on the credit side of the profit and loss account. Income from investments, rent earned, discount received, commission earned, interest earned and dividend received are indirect incomes. Profit on sale of fixed assets and investments are examples of gains.
. . Closing of profit and loss account After debiting indirect expenses and losses and crediting all indirect incomes and gains, if the total of the credit side of the profit and loss account exceeds the debit side, the difference is Accountancy - termed as net profit. On the other hand, if the total in the debit side exceeds the credit side, the difference is termed as net loss.
Net profit or net loss is transferred to the capital account. . . Format of profit and loss account Profit and loss account for the year ended …….
Cr. To Gross loss b/d To Office and administrative expenses: Salaries Rent, rates and taxes Printing and stationery Postage Legal charges Audit fees Establishment expenses Trade expenses General travelling expenses Lighting Insurance premium By Gross profit b/d By Indirect incomes: Rent earned Discount received Commission earned Interest on drawings Interest on investments Dividend on shares Bad debts recovered Profit on sale of fixed assets Apprenticeship premium Miscellaneous receipts By Net loss* (transferred to capital account) To Selling and distribution expenses: Carriage outwards Advertisement Commission Brokerage Bad debts or provision for bad debts Export duty Packing charges To Other expenses and losses: Repairs Depreciation Interest charges Discount allowed Provision for discount on debtors Bank charges Interest on capital Donation and charity Loss on sale of fixed assets Abnormal loss due to fire, theft etc. not covered by insurance Miscellaneous expenses To Net profit* (transferred to capital account) * The balance will be either