Question

What is a profit and loss statement? What does it provide? (100–150 words)

Answer 1

Profit and loss statement is defined as below:

The profit and loss statement which is also known as Income statement can be defined as a statement that give a brief overview of the revenues whether direct or indirect (except sales since sales are a part of trading account), expenses whether direct or indirect earned or incurred by a organization during a particular period of time.

It is a type of nominal account which includes debit and credit side. Under debit side we record all expenses such as general,administrative and marketing expenses, selling and distribution expenses, bank charges etc are recorded. On the credit side it includes revenues such as brokerage or commission income, profit on sale of asset etc.

If the debit side in which we enter organization expenses exceeds credit side on which we enter organizations incomes, the difference is a loss incurred by the organization. Else if credit side in which we enter organization revenues exceeds debit side on which we enter organizations expenses, the difference is a profit earned by the organization.

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