Financial Statements - I

viz. profit and loss account. All revenue/gains other than sales are transferred to the credit side of the profit and loss account. If the total of the credit side of the profit and loss account is more than the total of the debit side, the difference is the net profit for the period of which it is being prepared.

On the other hand, if the total of the debit side is more than the total of the credit side, the difference is the net loss incurred by the business firm. In an equation form, Net Profit = Gross Profit + Other Incomes – Indirect Expenses Net profit or net loss so computed is transferred to the capital account in the balance sheet by way of the following entry : We are now redrafting the trading and profit and loss account to show gross