Profit and Loss Statement (P&L) Definition
What is Profit and loss statement in tally? profit and loss is a type of financial statement. Which summarizes the costs, expenses and revenues incurred within a given period, quarter or year. P&L is synonymous with a company or firm to see the correct information of income and expenses at a given point of time.
Profit and loss is a type of record that is sufficient to look at a company’s revenue, reduce expenses, and increase the company’s profit in any way. Due to which the company plans ahead according to the profit and loss report in the coming time. The purpose of making P&L is to get all the information about the expenses and revenue of the company in a limited time.
Meaning of Profit And Loss
Often people think of profit and loss and trading account as one, but it is not so, these two accounts are different. The trading account shows revenue based on direct sales and direct expenses of the company. It does not include indirect income and indirect expenses. And when we come to know about profit or loss with the help of trading account, it is called gross profit or gross loss. The result of direct sales and direct expenses in the trading account is called gross profit or gross loss.
When the Gross Profit or Gross Loss of the trading account moves to the next level, it is called Profit and Loss in tally. All types of indirect income and indirect expenses are included in the P&L. Like salary, water exp. Phone. the former. Electricity, repair and maintenance. fare exp,etc. And indirect income includes all the income that the company receives from places other than its businessmen. And when finally the indirect expenses are deducted from all the indirect income, the company gets a net profit or a net loss in profit and loss in tally
How to make Profit And Loss Statement
When the accountant keeps the account of the transactions taking place in a company in Tally, then profit and loss account is prepared automatically. The accountant makes all kinds of entries in the tally books, be it expenditure or income, all of them reach the respective account. The profit and loss account includes all direct and indirect income and direct and indirect expenses.
Example Profit and Loss Statement (P&L)
Debit List of Profit and Loss (P&L) Account
1. Salary Exp.
2. Fare Exp.
3. Telephone Bill Exp.
4. Water Bill Exp.
5. Electricity Bill Exp.
6. Postal & Courier Exp.
7. Printing & Stationery Exp.
8. Office Rent Exp.
9. Insurance Fee
10. Audit Fee Exp.
11. Repair and Maintenance EXP.
12. Legal Fee exp.
13. Depreciation Charges exp.
14. General or Business Expenses
15. Petrol Expenses
16. Net (Wi-Fi) Charges
Credit List of Profit and Loss (P&L) Account
1. Rent received
2. Commission Rec.
3. Interest received
4. Obtained Bed Loan
5. Gross Profit
6. Income from Investment
7. Discount Received
8. Profit on sale of immovable properties
Sales and Distribution Expenses List in Profit and Loss Account
1. Salary of Sales Man
3. Warehouse Expenses
5. Delivery Expenses
6. Bad Debts
7. Freight and Carriage on Sale
8. Insurance of Finished Goods
9. Packing Expenses
Difference Between Profit and loss ( P&L) and Balance Sheet
The profit and loss (P&L) account contains information about all direct and indirect income and direct and indirect expenses of the company. Which gives information about net profit or net loss at a particular point of time. On the other hand, the Balance Sheet which shows all the assets and all the Liabilities of the company. The balance sheet shows the actual position of the company, how much of the company’s assets and the company’s total liabilities. Balance sheet includes all types of current assets, fixed assets, investments, bank loans, personal loans, sundry debtors and sundry creditors, Accrued income, unearned income, prepaid expenses, outstanding expenses. Whereas profit and loss account includes all income and all expenses. To know the actual position of a company, the assets will be more than the liabilities, only then the company is in profit.
Why Required to Profit and loss (P&L) statement
All companies are required to prepare profit and loss so that they can get information whether the company is in profit or loss by looking at the profit or loss in the year of the company. With the help of P&L, if the expenses of a company have increased in the year, then in the coming year the company tries to reduce its expenses. So that the company can get more profit. All expenses in P&L can be easily seen that how much salary or other expenses have been incurred in the month.
Limitation of profit and loss (P&L)
Profit and Loss Account is prepared for a fixed period of time, which is considered accurate on many grounds. Profit and Loss Account is created in a given time frame. From this, the net profit or net loss can be ascertained accurately only when the accountant has all the details. But this is not possible. The accountant does not have all the documents from the time the company is started. (P&L) can get information for the same year whose details have been entered in your tally by the accountant. Otherwise it would not have been possible to see it. The profit or loss received from the profit and loss account is not proved to be correct. But they are used more to get information, so it can be used to get profit and loss.
Benefits of Profit And Loss Accounts
Talking about the benefits of Profit and Loss Account, it is beneficial to look at all the income and all expenses of a company at a given point of time. (P&L) I can also find out whether the company is in profit or loss by looking at the income and expenses for the quarter and the year. All kinds of expenses like salary, telephone bills, repair expenses. By looking you can find out everything about the net profit or net loss of the company.