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Accounting For Managers - Preparation of Final Accounts

Form And Presentation Of Profit And Loss Account / Income Statement

   Posted On :  26.01.2018 12:02 am

In practice there is considerable variety in the format and degree of detail used in income statements. The profit and loss account is usually prepared in “t” shape. The following (illustration-a) is the summarized profit and loss account of ali akbar ltd.

Illustration – A:

Ali Akbar Ltd

Profit And Loss Account For The Year Ended 31st March 2005


In the “t” shaped profit and loss account, expenses are shown on the left hand side i.e., the debit side and revenues are shown on the right hand side i.e., the credit side. Net profit or loss is the balancing figure.

 

The profit and loss account can also be presented in the form of a statement when it is called as income statement. There are two widely used forms of income statement: single step form and multiple-step form. The single-step form of income statement derives its name from the fact that the total of all expenses is deducted from the total of all revenues.

 

Illustration – a can be presented in the single-step form as given in illustration – b.

 

 

Illustration – B:

 

Ali Akbar Ltd

 

Income Statement For The Year Ended 31st March 2005



The single-step form has the advantage of simplicity but it is inadequate for analytical purpose.

The multi-step form income statement is so called because of its numerous sections, sub-sections and intermediate balances. Illustration – c is a typical proforma of multiple-step income statement.

Illustration – C:

 

 

Proforma Of A Multiple-Step Income Statement



Illustration – D

Ali Akbar Ltd

Income Statement For The Year Ended 31st March 2005



The advantage of multiple-step form of income statement over single step form and the “t” shaped profit and loss account is that there are a number of significant sub totals on the road to net income which lend themselves for significant analysis.

Income statements prepared for use by the managers of an enterprise

Usually contain more detailed information than that shown in the above illustrations.

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