Topic Content:
- Definition of Profit and Loss Account
- Importance of Profit and Loss Account
- Worked Example – Preparing a Profit and Loss Account
- Evaluation Essay Questions
What is a Profit and Loss Account?
A profit and loss account is an account that is prepared at the end of a business period, usually a year, by the farmer to know whether his business is making a profit or loss.
In this account, all expenses and purchases are listed on the left-hand side, i.e. debit side and all receipts or sales are recorded on the right-hand side i.e. credit side.
The farmer can determine his profit or loss by simple subtraction.
The formula for net profit is:
Net Profit = Total Revenue – Total Expenditures
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