Profit and Loss Account Format & Meaning
Definition
A profit and loss (P&L) account shows a business's income and expenses for a period and the resulting net profit or loss. For companies it is called the Statement of Profit and Loss.
| Term | Profit and loss account |
|---|---|
| In Hindi | लाभ-हानि खाता |
| Area | Accounting |
| Search phrase | profit and loss account format |
| Try it | Balance sheet format |
लाभ-हानि खाता — हिंदी में अर्थ
लाभ-हानि खाता एक अवधि की आय और खर्च दिखाता है और बताता है कि शुद्ध लाभ हुआ या हानि।
Statement of profit and loss (Schedule III)
Revenue from operations + Other income = Total income. Expenses: cost of materials consumed, purchases of stock-in-trade, changes in inventories, employee benefits expense, finance costs, depreciation and amortisation, other expenses. Profit before tax − tax expense = Profit for the period.
Trading and profit and loss account
Small businesses often prepare a trading account first — sales less cost of goods sold gives gross profit — and then a profit and loss account, where indirect expenses (rent, salaries, interest, depreciation) are deducted from gross profit to give net profit.
Example
Sales ₹1.2 crore − cost of goods sold ₹80 lakh = gross profit ₹40 lakh; − salaries, rent, interest and depreciation ₹28 lakh = net profit ₹12 lakh before tax.
Related tools and guides
Frequently asked questions
What is a profit and loss account?
A statement of income and expenses for a period, ending in net profit or loss.
What is the difference between gross profit and net profit?
Gross profit is sales minus cost of goods sold; net profit is gross profit minus all other expenses, interest and depreciation.
Is depreciation shown in the P&L account?
Yes, as an expense, which reduces profit without any cash going out.
How often is a P&L prepared?
Statutorily once a year, but most businesses review it monthly; an ERP produces it from posted transactions at any time.
Related terms
- Accounts receivableAccounts receivable is the money customers owe a business for goods or services already supplied on credit. It is shown as trade receivables (debtors) under current assets.
- Accrual vs cash basis of accountingUnder the accrual (mercantile) basis, income and expenses are recorded when they are earned or incurred, whatever the payment date. Under the cash basis, they are recorded only when cash is actually received or paid.
- Balance sheetA balance sheet is a statement of what a business owns (assets) and what it owes (liabilities and owners' equity) on a particular date. Total assets always equal total equity plus liabilities.
- Cash conversion cycleThe cash conversion cycle (CCC) is the number of days between paying for raw material and collecting cash from the customer for the finished goods: days inventory outstanding plus days sales outstanding minus days payables outstanding.
- Contra entryA contra entry is a transaction between cash and bank accounts of the same business — such as cash deposited into the bank or cash withdrawn for office use — where both the debit and the credit side are cash or bank.
- Contribution marginContribution margin is selling price minus variable cost. It is the amount each sale contributes first towards fixed costs and then to profit; as a percentage of sales it is called the contribution margin ratio or P/V ratio.