Tag: forms of statements of profit and loss

Questions Related to forms of statements of profit and loss

Which of the following principle/s must be kept in mind while preparing Trading and Profit and Loss Account?

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Profit or loss is determined by matching revenues and expenses according to the matching principle

  2. Only revenue expenses together with losses should be taken into account

  3. Only revenue receipts i.e. sale proceeds and other incomes should be entered

  4. All of the above

Show answer
Correct Option: D
Explanation:

Profit or loss is determined by matching revenues and expenses. All expenses incurred for the purpose of earning income should be debited to the account. Expenditure of revenue nature alone and that relating to only the period concerned should be debited to the account.

 Losses suffered by accident or otherwise should be debited to the statement of profit and loss account. All the revenue income relating to the period concerned is recorded, even if they have not been actually received in cash. 

The _________ measures net profit/ loss by matching revenues and expenses according to the accounting principles.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. trading A/c

  2. manufacturing account

  3. profit and loss A/c

  4. none of the above

Show answer
Correct Option: C
Explanation:

Profit and Loss Account measures net profit/loss by matching revenues and expenses according to the Matching Principle. The matching principle is one of the basic underlying guidelines in accounting. This principle requires a company to match expenses with related revenue. The matching is based on a cost and effect relationship.

Which of the following is NOT true with regard to preparation of Profit and Loss Account?

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Profit and Loss Account is prepared for a certain period and hence it is an interim statement

  2. Profit and Loss Account does not disclose the effect of non-financial iterms

  3. Net Profits are ascertained on the basis of current costs

  4. Net Profit as disclosed by Profit and Loss Account is not absolute

Show answer
Correct Option: A

At the time of preparation of financial accounts, bad debts recovered account will be transferred to______________.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Debtors A/c

  2. Profit and Loss A/c

  3. Profit and Loss Adjustment A/c

  4. Profit and Loss Appropriation A/c

Show answer
Correct Option: B
Explanation:

At times. a debtor whose account had earlier been written off as bad debts may decide to make the payments. 

This is called Bad debts recovered. While journalizing for bad debts, Debtor's personal account is credited and bad debts account is debited because bad debts are treated as loss to the firm and now when they are recovered it is seen as a gain to the business. So, they are transferred to Profit and Loss Account.  

Firms aim at maximization of ______ profit.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. supernormal

  2. normal

  3. total

  4. average

Show answer
Correct Option: C
Explanation:

A common measure of a company's success equal to the net revenue that remains once all costs have been deducted. The total profits for a business forms the base income that is used to compute tax and determine how much of a dividend to pay to shareholder. 

Total profits shows how a business is performing. It shows how the firm has used the funds entrusted to it by its stakeholders and lenders. So firms aim at maximization of total profit.  

Net Profit is equal to ______________.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Sales - Cost of Goods sold

  2. Sales - Operating cost

  3. Gross profit - Operating expenses

  4. Sales - Operating and Non -operating cost

Show answer
Correct Option: D
Explanation:
Net profit is calculated by deducting all the operating expenses and non operating expenses and adding all the operating and non operating income in the sales. Hence, the formula is
Sales - (operating cost + Non operating cost)  

Operating Profits is equal to _________________.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Sales - Cost of Goods Sold

  2. Sales - Non-operating

  3. Gross profit - operating expenses

  4. Net profit + Operating Revenue

Show answer
Correct Option: A
Explanation:
Operating profit = Sales - Cost of goods sold
Operating profit is the profit earned only by the business activities. Operating profit and gross profit are the same as they only include the expenses and incomes directly related to business. 

Operating Cost is equal to _________________.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Cost of Goods Sold + Operating Cost

  2. Cost of Goods - Operating Expenses

  3. Sales - Gross Profit

  4. Sales - Operating Profit

Show answer
Correct Option: D
Explanation:
Operating cost = sales - operating profit
Operating cost include all the costs that are related to the business directly. By deducting operating profit from sales we will get the operating cost of the business. 

Capital introduced in the beginning of the year by Ram is Rs. $40,000$. Further capital introduced during the year Rs. $1000$. Drawings for the year is Rs. $200$ per month and Closing capital is Rs. $53,600$. Determine the profit/loss for the year ended?

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Rs. $15,000$ profit

  2. Rs. $5,000$ Loss

  3. Rs. $20,000$ Profit

  4. Can't say

Show answer
Correct Option: A
Explanation:

To determine the profit/loss for the year ended :

Closing Capital at the end of the year           = 53600
Less: Capital in the beginning (40000)
Less: Additional capital (1000)                        = 12600
Add:  Drawings for the year 2400(200*12)    =15000

The gain from sale of capital assets need not be added to revenue to ascertain the ________________.

commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

  1. Gross profit of a business.

  2. Net profit of a business.

  3. Operating profit of a business.

  4. All of above.

Show answer
Correct Option: D
Explanation:

The gain from sale of capital assets will need to be added to revenue to calculate the non - operating profit, and not gross profit, net profit and operating profit. 

Gross profit is calculated to ascertain the profit from sale and purchase of goods/services, operating profit accounts only operating incomes and expenses and net profit is gross profit less operating expenses.