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Understanding “Profit and Loss (P&L)” from Techies Mind
Posted By Sanjit Anand On March 1, 2008 @ 9:24 am In Basic Accounting,JumpStart | 1 Comment
Profit and Loss A/C
What you suppose to remeber is :
The term Revenue and expense
In term of accounting, this can be described as:
Revenue Account :This is the income account. Whenever a revenue account balance is changed, it leads to a change in the Assets / Liabilities account. Revenue account is not a control account, itâ€™s treated as an operative account. At the beginning of a new accounting cycle, this account is turned to zero. Entire balance is transferred to the retained earnings account.
Expense Account : This is the operations expenditure account. Whenever an expenditure account balance is changed, it leads to a change in the Assets / Liabilities account. This account behaves just like the Ownerâ€™s equity account as an increase in this account essentially means a decrease in ownerâ€™s equity. Expense account is not a control account, itâ€™s treated as an operative account. At the beginning of a new accounting cycle, this account is turned to zero. Entire balance is transferred to the retained earnings account.
Spliting the above , the balance sheet can be drived on the basis of these. You can see the details in one of last post .
where as Profit and Loss report can be best build and understand as:
Profit and Loss A/c Concept
Profit and Loss can be based out of these basic concept as discussed in one of my post  .
- Expenditure during A/c period which are also expenses of that period.
- Expenditure during the A/c period which will become expense only in future periods
- Expenditure during the previous A/c period which will become expenses during the current A/c period
- Expense of the current A/c period which have not yet been paid
What is important here is
- â€˜point of timeâ€™ or revenues earned
- recognition of revenues
Normally companies measure there profits by change in Ownersâ€™ equity , revenues increases OE, expenses decreases OE
MATCHING EXPENSES WITH REVENUE
- Income (profit) - the excess of revenues over expenses
- Revenues - Expenses = Profit
- Retained earnings - additional ownersâ€™ equity generated by income or profits
- Revenues increase ownersâ€™ equity.
- Expenses decrease ownersâ€™ equity.
Balance sheet and P&L- Driven by Transaction
In last post we have seen BS provides a snapshot of an entityâ€™s financial position at an instant in time., where as P&L A/c provides a moving picture of events over a span of time and explains the changes that have taken place between BS dates. This can be best described as below figure.
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URL to article: http://www.oracleappshub.com/jumpstart/profit-loss-account/
URLs in this post:
 last post: http://www.oracleappshub.com/jumpstart/balance-sheet/
 my post: http://www.oracleappshub.com/beginner/understanding-accounting-from-techies-mind/
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