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Jun 21, 2007
|t is the summary of such accounts which effect the profit or loss of the concern. These are prepared by transferring from the trial balance all nominal accounts and accounts relating to goods by means of journal entries called 'closing entries'. All remaining accounts i.e. real and personal, relating to properties, assets, debtors and creditors are shown in the balance sheet. In order to know the overall picture of the effect of these accounts they are grouped at one place. Items' increasing profit (revenue) are put on one side (credit) and those decreasing profits (losses and expenses) on the other side (debit). The balance is either net profit or net loss. This income statement is normally divided into two parts - first part is called trading account and second part is called profit and loss account. The procedure for preparing various accounts is discussed in details in this article. |
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