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CONTENTS
PROFIT AND LOSS ACCOUNT..
PROFIT AND LOSS APPROPRIATION ACCOUNT..
RESERVE FOR BAD-DEBTS..
PROVISION FOR BAD AND DOUBTFUL DEBTS..
PROFIT AND LOSS ACCOUNT
AN ACCOUNT IN THE BOOKS OF AN ORGANIZATION TO WHICH
INCOMES AND GAINS ARE CREDITED AND EXPENSES AND LOSSES
DEBITED, SO AS TO SHOW THE NET PROFIT OR LOSS OVER A GIVEN
PERIOD.
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
MAR.
1
TO GROSS LOSS B/D***
MAR.
1
BY GROSS PROFIT B/D***
MAY.
2
TO EXPENSES***
MAY.
4
BY INCOMES***
JUN.6 TO NET-PROFITS***
JUN.1 BY NET LOSS***
PROFIT & LOSS APP. ACCOUNT
PROFIT AND LOSS APPROPRIATION ACCOUNT SHOWS THE DISTRIBUTION
OF NET PROFIT AMONGST THE SHAREHOLDERS IN THE FORM OF DIVIDEND
AND TRANSFER OF PROFIT TO VARIOUS RESERVES AND ISSUE OF BONUS
SHARE. PROFIT AND LOSS APPROPRIATION ACCOUNT IS PREPARED AFTER
THE PREPARATION OF PROFIT AND LOSS ACCOUNT.
DEBIT SIDE OF THIS A/C1. TRANSFER TO RESERVE /GENERAL RESERVE.
2. TRANSFER TO DIVIDEND.
3. DEBENTURE REDEMPTION FUND ACCOUNT.
4. DIVIDEND EQUALIZATION FUND ACCOUNT.
5. DIVIDEND DISTRIBUTION TAX.
6. INCOME TAX FOR PREVIOUS YEAR NOT PROVIDED FOR.
7. SURPLUS TRANSFER TO BALANCE SHEET.
CREDIT SIDE OF THIS A/C
1. BALANCE OF SURPLUS OF PREVIOUS YEAR.
2. NET PROFIT OF THIS YEAR.
3. AMOUNT WITHDRAWN FROM GENERAL RESERVE OR
ANY OTHER RESERVE.
4. PROVISION SUCH AS INCOME TAX PROVISION.
DIFFERENCE
P&L ACCOUNT P&L APP. ACCOUNT
AFTER TRADING ACCOUNT AFTER P&L ACCOUNT
SHOWS NET PROFIT OF THE YEAR SHOWS HOW NET PROFIT DISTRIBUTED
DOESN’T HAVE OPENING OR CLOSING BAL. MAY HAVE BOTH OPENING AND CLOSING
BAL.
NET PROFIT-P&L APP.- BALANCE SHEET BALANCE-NEXT YEAR P&L APP. A/C
STATEMENT OF OPERATIONS STATEMENT OF RETAIN EARNINGS
RESERVE FOR BAD-DEBTS
AN ACCOUNT SET ASIDE BY A COMPANY TO ACCOUNT FOR AND
OFFSET LOSSES THAT ARISE AS A RESULT OF DEFAULTS FROM
FUTURES LOANS. THIS FIGURE MAY BE CALCULATED BASED ON
HISTORICAL NORMS OR OTHER KNOWN INFORMATION ABOUT
THE RELATIVE SAFETY OF THE DEBT.
BAD DEBT RESERVE, ALSO CALLED AN ALLOWANCE FOR
DOUBTFUL ACCOUNTS (ADA), IS A REDUCTION IN A COMPANY'S
ACCOUNTS RECEIVABLE. THE BAD DEBT RESERVE IS THE
AMOUNT OF RECEIVABLES THAT THE COMPANY DOES NOT
EXPECT TO ACTUALLY COLLECT
PROVISION FOR BAD-DEBTS
THE PROVISION FOR DOUBTFUL DEBTS IS THE ESTIMATED
AMOUNT OF BAD DEBT THAT WILL ARISE FROM ACCOUNTS
RECEIVABLE THAT HAVE BEEN ISSUED BUT NOT YET
COLLECTED
THE PROVISION FOR DOUBTFUL DEBTS IS ALSO KNOWN AS
THE PROVISION FOR BAD DEBTS AND THE ALLOWANCE FOR
DOUBTFUL ACCOUNTS.
KEY POINTS
RESERVE IS AN APPROPRIATION OF PROFIT AND PROVISION
IS A CHARGE ON PROFITS.
RESERVE FOR BAD DEBTS CAN BE CREATED ONLY IF THE
PROVISION FOR BAD DEBTS EXCEEDS THE VALUE OF DEBTS.
DIFFERENCE1. MODE OF CREATIONRESERVE IS CREATED AGAINST THE CHARGE OF THE PROFIT AND LOSS APPROPRIATION ACCOUNT. PROVISION IS CREATED AGAINST THE CHARGE OF THE PROFIT AND LOSS ACCOUNT.
2. OBJECTIVEMAIN OBJECTIVE OF RESERVE IS TO STRENGTHEN THE FINANCIAL POSITION AND TO MEET FUTURE UNKNOWN LOSSES AND LIABILITIES. OBJECTIVE OF PROVISION IS TO MEET KNOWN LOSSES AND LIABILITIES THE AMOUNT OF WHICH IS NOT CERTAIN.
3. ACCOUNTING TREATMENTRESERVE IS SHOWN ON DEBIT SIDE OF PROFIT AND LOSS APPROPRIATION ACCOUNT AND LIABILITIES SIDE OF BALANCE SHEET. PROVISION IS SHOWN ON DEBIT SIDE OF PROFIT AND LOSS ACCOUNT AND ASSETS SIDE OF BALANCE SHEET AS DEDUCTION FROM THE CONCERNED ASSET.
4. RELATION WITH PROFITRESERVE IS CREATED WHEN THERE IS ENOUGH PROFIT IN THE BUSINESS. PROVISION IS CREATED EVEN IF THERE IS LOSS IN THE BUSINESS.
5. DISTRIBUTIONRESERVE CAN BE DISTRIBUTED TO SHAREHOLDERS AS DIVIDEND. PROVISION CAN NOT BE DISTRIBUTED AS DIVIDEND TO SHAREHOLDERS.
6. FUTURE REQUIREMENTRESERVE IS CREATED WITHOUT CONSIDERING THE FUTURE REQUIREMENT OF THE BUSINESS. PROVISION IS CREATED BY ESTIMATING THE FUTURE REQUIREMENT OF THE BUSINESS.
7. IMPACTIMPACT OF RESERVE WILL BE ON FINANCIAL POSITION. IMPACT OF PROVISION WILL BE ON PROFIT OR LOSS OF THE BUSINESS.