Explain the objects of preparing Profit and Loss Account.

Question

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Answer

Profit and Loss Account is prepared with the following objectives:

Determine Net Profit or Net Loss: The main purpose of preparing Profit and Loss Account is to ascertain net profit earned or net loss incurred by the business during the accounting period.
Comparison with the Previous Year's Profit: Profit determined by the Profit and Loss Account for the accounting period can be compared with that of the previous year's profit. It helps in ascertaining whether the business is being conducted efficiently or not.
Finding Details of Indirect Expenses: Indirect expenses are shown in the Profit and Loss Account. These expenses can be compared over the period and suitable steps can be taken for controlling these expenses.
Helps in Preparing Balance Sheet: A Balance Sheet can be prepared only after ascertaining Net Profit or Net Loss through the preparation of Profit and Loss Account.

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2019		₹
March 1	Cash in Hand	12,750
	Cash at Bank	72,400
March 4	Received from Asha cash ₹ 1,200 and a cheque for ₹ 3,200, allowed discount ₹ 400
March 7	Paid salary to staff by cheque	25,600
March 9	Withdrawn cash from bank for office use	21,900
March 12	Interest paid by bank on bank balance	1,200
March 16	Purchased furniture in cash	16,500
March 21	Paid Mohan & Co. by cheque, discount received ₹ 100	10,900
March 24	Proprietor withdrew from office cash for his personal use	11,600
March 29	Sold goods to Manoj for cash	14,800
March 31	Deposited office cash into bank	21,200