B Com Exam > B Com Videos > Accountancy and Financial Management > Profit & Loss Accounts - Principles of Accounting, Accountancy and Financial management
Profit & Loss Accounts - Principles of Accounting, Accountancy and Financial management Video Lecture | Accountancy and Financial Management - B Com
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FAQs on Profit & Loss Accounts - Principles of Accounting, Accountancy and Financial management Video Lecture - Accountancy and Financial Management - B Com
| 1. What is a profit and loss account? |  |
Ans. A profit and loss account is a financial statement that shows a company's revenues, expenses, gains, and losses over a specific period. It provides information about the company's ability to generate profit by increasing revenue or decreasing expenses.
| 2. What is the purpose of a profit and loss account? | |
Ans. The purpose of a profit and loss account is to determine the net profit or loss of a business during a specific period. It helps in evaluating the financial performance of a company, understanding the sources of revenue and expenses, and identifying areas for improvement.
| 3. How is a profit and loss account prepared? | |
Ans. A profit and loss account is prepared by gathering information from various sources such as sales records, purchase invoices, expense receipts, and bank statements. Revenue is recorded in the credit column, while expenses are recorded in the debit column. The difference between the total revenue and total expenses represents the net profit or loss.
| 4. What is the difference between gross profit and net profit? | |
Ans. Gross profit is the excess of revenue over the cost of goods sold. It represents the profit earned from the core operations of a business before deducting other expenses such as rent, salaries, and taxes. Net profit, on the other hand, is the remaining profit after deducting all expenses, including operating expenses, interest, and taxes.
| 5. How can a profit and loss account help in decision-making? | |
Ans. A profit and loss account provides valuable information for decision-making. It helps in identifying areas of high expenses, low revenue, or declining profits, allowing management to take corrective actions. It also assists in analyzing the profitability of different products or services, determining pricing strategies, and assessing the overall financial health of the company.
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