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Why P&L a/c?

CA Srikanth (Job) (148 Points)

26 November 2008

What is difference between turnover & sales? and y it is called P& L a/c instead of only Profit or loss a/c??

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10 Replies

(Guest)

Good Question

First turnover and sales are same thing , two names of one thing

Second, Profit or Loss a/c, P&L a/c are same . There is no difference between two.

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CA Chaitanya (PRACTISING CA) (4283 Points)
Replied 26 November 2008

It is a very popular question in the interviews. Why is it called profit and loss account, whereas the result will be either profit or loss? It has a meaning and there is a reason for this one dear.

Mani VGS (Teacher) (729 Points)
Replied 26 November 2008

Both are not same my dear. If there is a meaning, people should tell and explain

Take the following:

Assume your organisation name is X Ltd. Assume you have three divsion viz. A , B and C. Division A deals with product A, Divsion B deals with product B and Division C deals with product C. When you prepare Financil statements for the year ended [trading, p & L and balance sheet}, you will not prepare all these things separately for division A, B and C separately.

YOu will prepare only one consolidated statement. But it is not necessary or condition that all the products should give you profit or all of them should be loss. div A may be a profitable one while others are showing loss

While preparing p & L, division A will show profit and others will show loss. So only we are telling profit and loss account and not profit or loss account.

They same example you can extend for branches situated in various places.

Hope you understood. Or else mail to me manivgs @ rediffmail.com

CA Chaitanya (PRACTISING CA) (4283 Points)
Replied 26 November 2008

The total result will be either profit or loss, but certain items like profit or loss on sale of assets, profit or loss on sale of investments etc will come in profit and loss a/c . So in the same profit and loss account there may be profit and at the same time there may be loss. Eg. The result will be net profit and there may be a loss on sale of an asset. So in the same profit and loss account there MAY be profit AND loss. Hence it is called profit and loss account and not profit or loss account.

sb (ca) (32 Points)
Replied 26 November 2008

Well yeah, its called profit and loss account instead of profit or loss because individually there might be loss on some transactions and profit on others. So the final thing we depict is the net of profits as well as losses and so it is called as profit and loss accoount.

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CA Srikanth (Job) (148 Points)
Replied 26 November 2008

thnx friends...the second question is clear....but how about turnover & sales?? r they both same??

sb (ca) (32 Points)
Replied 26 November 2008

yeah, they do mean the same.

CA Abhash Mishra (Chartered Accountants) (598 Points)
Replied 26 November 2008

Sale may be a individual department but turnovers mean companies total sale it can to be individualy. Company can may have provide lots of services heads. Sales mean total sales of a individual service bur turnover mean gross of total service.

Thanks

CA. Dashrath Maheshwari (TaXpert) (15103 Points)
Replied 26 November 2008

Sales:
Revenue from ordinary activities - not necessarily cash.

Turnover:
This is gross revenue from sales of goods and services billed.

However, the turnover has many meanings like:

The act of overturning something
The amount of business transacted in a specified time period.
E.g. The company had an annual turnover of $500.000.
The number of times a stock is replaced after being used or sold, a worker is replaced after leaving, or a property changes hands.
E.g. Those apartments have a high turnover because they are so close to the railroad tracks.
A pastry consisting of pastry or pie crust around sweet, often fruit filling.
E.g. They only served me one apple turnover for breakfast.
(sports) A loss of possession of the ball without scoring.
E.g. The Nimrods committed another dismaying turnover en route to another humiliating loss.

**DM

CA Sunny Sharma (Service) (234 Points)
Replied 27 November 2008

Hi Mr. Mani VGS , i do not agree with your point in corporate accounting is always done on cost centre basis so in case of three products three PL accoubnts will be there to compute the profitability of all the products however while showing it to shareholders they merge it and then show a single PL. More over as per AS 17 segment reporting we ned to show the activites of different business if they fullfills defined conditions........Please correct me if i am wrong somewhere