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Why net profit c/d is shown in the debit side of p/l accont

CA.Satyaranjan Jena (Service) (267 Points)

12 March 2013

We all know that all expenses and losses is debited to P/L Account. If this is the rule, then why the net profit c/d is shown in the debit side of the P/L Account even though it is an income/profit?

Plz reply. Nobody should reply that it is the difference between credit and debit side

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5 Replies

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 12 March 2013

P&L account is an nominal account. Rule for this type of account is Debit all exp & loss and credit all gains & income. So if the credit side is larger than the debit side then naturally its a profit so it is written on the debit side profit c/f to tally the P&L account.

for e.g. if credit side of P&L is say 100000 and debit side is say 75000, so on the debit side it would be written as profit c/d 25000. If it is written on the credit side then the P&L wont tally. Credit side would be 125000 and debit side would be only 75000 whihc would mismatch the totals.

On the other hand if it is a loss then debit side is greater than credit side and it will be written on the credit side as loss c/f same as explained above..

hope this would resolve your doubt

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gbalakrishnan (owner) (1373 Points)
Replied 12 March 2013

jena, karandikar has explained to u, r u satisfied!

CA Suraj Lakhotia (IndigoLearn) (4898 Points)
Replied 12 March 2013

Income/Profits accrue to the owners of business and is payable to them.

The actual entry is -

Profit and Loss A/c ... Dr

To Capital A/c

In books/studies we simply write

To Net Profit.

Similar is the case when Gross Profit is transfered to Profit and Loss Account.

The actual entry is

Trading A/c Dr

To Profit and Loss A/c

mahendra jangid (Dy. General Manager (Finance)) (444 Points)
Replied 12 March 2013

Profit C/D is not an account but a balance which is excess of income (Cr side) over expenses (Dr. side). Thus to close the account and carry forward to the credit of next year or transfer to some other account, it needs to be shown on the debit side as the balancing figure.

CA.Satyaranjan Jena (Service) (267 Points)
Replied 12 March 2013

Hi frnds the answer is here:

The Profit and loss account is prepared in the name of the business. The profit earned from the business is the profit for the owner and actually it is loss for the business because the ownership of that profit is with the owner. Based on business entity concept of accounting, transaction with owner has to be accounted. As the profit earned will be given to the owner, it is a loss for the business. Therefore it is debited to the P/L and added to the Owner's fund.