Profit and loss account
Options
A
B
C
D
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Preparation of Final Accounts of Sole ProprietorsQ-2 | Final Accounts of Sole ProprietorsQuestion 4773 of 40
All Questions Correct Answer
✅ Option — Correct Option
All Options:
- A
- B
- C
- D
Detailed Solution & Explanation
Profit and loss account:
It shows the performance of the entity i.e. profit earned or loss suffered considering
all indirect expenses and incomes.
Gross profit or gross loss from trading account is transferred to P&L a/c.
Other incomes like discount, interest, etc. are credited.
Administrative expense, selling and distribution expense, financial expense, income
tax, losses, etc. are debited to it.
The net profit/net loss is transferred to P&L appropriation A/c (if made) otherwise to
capital A/c.
If trading A/c is not prepared then in place of gross profit/gross loss all items of
trading A/c will come in P&L A/c itself
Although not necessary, but usually full profit/loss is transferred to proprietor/
partners capital account, hence profit & loss account does not appear in balance
sheet.
More Questions from Preparation of Final Accounts of Sole Proprietors
Mr. A accepts two bills of exchange on June 1, 2024 for ₹ 1,50,000 and 60,000 drawn on him by Mr. B. The bill of exchange for ₹ 1,50,000 is for two months while the bill of exchange for 60,000 is for three months. Mr. B got the first bill discounted with the bank for ₹ 1,49,000 on June 3, 2024. On August 2, 2024 Mr. A requested Mr. B. to cancel both the bills and drew a new bill on him with the combined amount of both the bills along with interest @ 12% per annum for a period of two months. Before the due date of the renewed bill on September 3, 2024, Mr. A becomes insolvent and only 40 paise in a rupee could be recovered from his estate. You are required to give the journal entries in the books of Mr. B. [Jan. 2025, 5 Marks]
Discuss the limitations which must be kept in mind while evaluating the Financial Statements. [Nov. 2018, 4 Marks]
Trading account
Balance sheet
Manufacturing A/c
Provision & Reserve
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