What is Profit & Loss Account?
- Profit and Loss Account (PL Account) is financial statement that presents the income and gain as well as the expenses and loss of an organization for the specific period of time.
- It is ledger of nominal account.
- Profit and loss account shows the financial performance of the organization.
- It shows the profit and loss of the organization so it indicated financial performance indicator.
- Debit side holds the expenses and losses and credit side holds the income and gain.
Methods of Preparing PL Account
- Revenue nature transaction is included in profit and loss account.
- All the income and gain are charged on the credit side and losses and expenses are charged on the debit side.
- If these the format defined by regulatory body then use such format other wise use traditional T format for preparing PL account.
- BFIs follows modern V format defined bu the NRB directive no. 4.
- Interest income is recored as cash basis and other transactions are recorded in accrual basis (there will be no trading account in the bank).
Format of PL Account of BFIs in Nepal
Banks and financial institutions have to follow the modern V format to prepare its profit and loss account. Specimen of profit and loss account of banks and financial institutions as per the NRB directive are as follow.
Traditional “T” Format (Not for BFIs)
PL account normal format (Traditional T format)
Profit and loss account of ABC firm for the period of Shrawan 1, 2077 to Ashad 31, 2078
|To gross loss b/d||0||By gross profit||10,00,000|
|To office and administrative expenses||7,00,000||By revenue income||12,00,000|
|To selling and distribution expenses||4,00,000||By revenue gain||1,00,000|
|To interest expenses||2,00,000||By net loss c/d||0|
|To revenue losses||1,00,000|
|To tax expenses||2,00,000|
|To net profit c/d||7,00,000|
Why Profit and Loss Account is Prepared?
Profit and loss account of any organization is prepared to:
- Present the financial performance of the organization.
- Present the information of revenue nature transaction.
- Create transparency.
- Promote the culture of accountability.
- Promote corporate good governance.
- Support auditing.
- Complete financial statement.
- Analyze the strength and weakness of the organization.
- Maintain financial discipline.
- Format of Balance Sheet (Major Heading as Per NRB Directive)
- Functions Duties and Powers of the CEO – as per BAFIA 2073
- Concept of Banking System
- BAFIA 2073 Major Highlights
- Company Act Highlights – Banking Notes