⚡ Ch 13 — Profit & Loss Account

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1️⃣ The core

The Trading A/c gave you Gross Profit. The P&L Account then deducts all indirect expenses and adds all other incomes to give NET PROFIT.

Net Profit = Gross Profit + Other Incomes − Indirect Expenses

⭐ It starts with Gross Profit on the CREDIT side (gross loss on the debit side).

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2️⃣ ⭐ The 5 groups of indirect expenses

⭐ Only revenue expenses of the CURRENT year go here. Personal expenses of the proprietor never do — they are Drawings.

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3️⃣ Quick Revision Table

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4️⃣ 🎯 PYQs from this chapter

PAA 2020 · Q96 — The credit balance of retained earning statement Represents

a) Undistributed Profit · b) Undisclosed Profit · c) Distributed Profit · d) Unearned Profit → Ans: A A credit balance on retained earnings = undistributed profit.

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⭐ From the REAL FAA 2022 paper (6 Mar 2022) — added 1 Sep 2026. See FAA-2022-paper.

FAA 2022 · Q32 — A positive balance on the debit side of the Profit & Loss account indicates

a) gross profit b) net profit c) gross loss d) net loss → Ans: B and D (double-keyed) ⚠️ Badly worded, so both were accepted. The rule to learn: a DEBIT balance in P&L = NET LOSS; a credit balance = net profit.

FAA 2022 · Q35 — Loss due to fire in a factory is recorded in the

a) balance sheet b) insurance account c) profit and loss statement d) factory account → Ans: C An abnormal loss — it is not a trading expense, so it goes to P&L, not the Trading A/c.

PAA 2020 · Q99 — Income tax paid on business income by a sole proprietor Is

a) debited to trading account · b) debited to profit and loss account · c) deducted from capital account in the balance sheet · d) added to capital account in the balance sheet → Ans: C A proprietor's income tax is a personal expense → deducted from capital, not charged to P&L.

5️⃣ Provision for doubtful debts — the standard sum

Charge to P&L = (Required provision) − (Existing provision) + (Bad debts written off during the year)

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6️⃣ High-frequency MCQ traps

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7️⃣ If you remember nothing else

Net Profit = Gross Profit + Other Income − Indirect Expenses · starts with GP on the CREDIT side · debit balance = NET LOSS · Net profit is CREDITED to Capital · discount received = income, discount allowed = expense · carriage OUTWARD & salaries → P&L · provision charge = required − existing · omitting an expense OVERSTATES profit (gross profit unaffected)

🔗 Related

• Full notes: L-13-PROFIT LOSS ACCOUNT · MCQs Q150–159 in MCQs
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