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Profit And Loss Account: Meaning/Definition - SS1 Accounting Lesson Note

A profit and loss account, also known as an income statement, is a financial statement that shows a company's revenue and expenses over a specific period of time. 

The profit and loss account starts with the company's total revenue for the period, which includes all the money the company earned from sales or services provided. From this revenue, the company deducts all the expenses incurred during the period, such as the cost of goods sold, wages and salaries, rent, utilities, and taxes. The difference between the revenue and the expenses is the company's net profit or net loss for the period.

If the revenue is greater than the expenses, the company made a profit, and this profit is added to the company's retained earnings or distributed to shareholders as dividends. On the other hand, if the expenses are greater than the revenue, the company made a loss, and this loss is subtracted from the company's retained earnings.

The purpose of the profit and loss account is to show whether a company made a profit or a loss during that period. The profit and loss account is an important tool for analyzing a company's financial performance, as it provides insight into how much money the company is making and where its money is being spent. It is also useful for comparing a company's performance over time or against its competitors.

 

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