Explanation of Certain items of Profit and Loss Account
Salaries are paid for the services of employees and are debited to profit and loss ac- count being indirect expense. If any salary has been paid to proprietor or partners, it should be shown separately because it requires special treatment at the time of income tax assessment.
2. Salaries and Wages
When wages account is included with salaries it treated is as indirect expense and is taken into profit and loss account.
Rent of the office shop showroom or godown is an indirect expense and so is debited to profit & loss account. However, rent of factory is debited to trading account. When a part of the building has been sublet the rent received should be shown on the credit side of profit and loss account as a separate item.
4. Rates and Taxes
These are levied by the local authorities to meet public expenditure. It being an indirect expenditure is shown on the debit side of profit and loss account.
Interest on loan, overdraft or overdue debts is payable by the firm. It is an indirect expense; so debited to profit and loss account. Interest on loan advanced by the firm on depositor investments is an income of the firm and so is credited to the profit and loss account.
If business has paid any interest on capital to its proprietor or partners it should also be debited in the profit and loss account but separately because this item needs special treatment at the time of income-tax assessment.
In business sometimes agents are appointed to effect sales, who are paid commission as their remuneration. So this being a selling expenses is shown on the debit side of profit and loss account. Sometimes commission is also paid on purchases of goods, such ‘as expense should be debited in the trading account. Sometimes the firm can also act as an agent to the other business houses and in such cases it receives commission from them. Commission so received is shown on the credit side of profit and loss account.
7. Trade Expenses
They are also termed as ‘sundry expenses’. Trade expenses represent expenses of such a nature for which it is not worthwhile to open separate accounts. Trade expenses are not taken to trading account.
Repairs to the plant, machinery, building are indirect expenses are treated expense and are debited to profit and loss account..
9. Traveling Expenses
Unless mentioned otherwise, traveling expenses are treated as indirect expenses and are debited to profit and loss account.
10. Horse & stable Expenses
Expenses incurred for the fodder of horses and wages paid for looking after stable are treated as indirect expenses and debited to profit and loss account.
11. Apprentice Premium
This is the amount charged from persons to whom training is imparted by the business. It is an income and is credited to profit and loss account. In case apprentice premium is …