Features of Profit and Loss Account

Profit and loss account is prepared by all companies, this statement takes into account all incomes and expenses which are made by the company during a year. Given below are some of the features of profit and loss account –

  1. This statement is made every year and after preparing it a company gets an idea whether it has made profit or loss during the year. The final figure which is arrived at after deducting expenses from revenue is transferred to the balance sheet, if there is profit then it is added to capital and if its loss than it is deducted from capital.
  2. Cash inflows like sales made by the company, interest received from deposits, dividend received during the year etc…., are shown as revenue whereas cash outflows like salaries paid, insurance premium, rent, advertising etc.., are shown as expenses.
  3. Capital expenditure made by the company like purchase of building or buying plant and machinery is not shown in this statement. However profit or loss made by selling of capital assets is shown in profit and loss account.
  4. There are some adjustments which needs to be made like outstanding expenses are to be added to and prepaid expenses to be deducted from respective expenses whereas accrued income is added and unearned income is to be deducted from respective incomes.
  5. It includes non cash expense like depreciation (it is shown as expense).
  6. Profit and loss account only shows the numbers it does not show how the profit or loss was made or in simple words it does not depicts what business company is doing.
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