Profit and loss account

Revenue defined
Revenue is the gross inflow of cash,
receivables or other consideration (when
received in kind) arising from the:
Sale of goods
Rendering services
From use by others the enterprise
resources (yielding interest, dividend,
royalty, rent)
What constitute expenses for an
accounting period
Expenses include all direct and indirect
expenses that have been incurred
(expired) for earning revenues in a
particular accounting period.
Expense include:
1. Expired Cost of current year
2. Unexpired cost of previous years
3. Expired but unpaid costs of current year
4. Lost cost

Income statement concepts
Accounting period concept
Realization concept (Ind-AS 18)

When should revenue be
recognized?
When earning cycle is complete
That is, when goods are delivered and
services are rendered
Delivery of goods and services
validates a claim against the customer

Example
For instance, B places an order with A for supply
of certain goods, yet to be manufactured. On
receipt of order, A purchases raw material,
employs workers, produces the goods and
delivers these to B. B make payment on receipt
of goods.
When do you expect revenue has accrued??
Is it when:
Order is received.
Goods are produced.
Goods are delivered.
Payment is received.
Conservatism concept
Matching concept/ Accrual concept
Outstanding expenses
During the year 2007, ABC Limited sold goods
worth Rs. 70,000 in cash. Cost of goods sold
(in cash) was 50,000. To facilitate sales
company had appointed 5 salesmen catering 4
different regions. Total sales commission paid
in cash was Rs. 10,000, however, commission
worth Rs. 7,000 was still unpaid.
How would you account for unpaid
commission in Balance sheet and P&L if the
accounting period is ending on 31
st
December,
2007

Profit and loss Account of X Ltd. For the year
ended 31
st
December, 2007







Sales 70,000
Cost of production (50,000)
Commission 10,000
Add: commission 7,000
Outstanding


(17,000)
Net income 3,000
Balance sheet of X Ltd. as on 31
st

December, 2007
Equities Assets
Owners equity
(Net income)
3,000
Commission o/s 7,000 Cash
(70,000-
50,000-
10,000)
10,000
Total 10,000 Total

10,000
Pre-paid expenses
On 1
st
January, 2006, A Ltd. paid Rs. 90,000 as
insurance premium till the end of 2008.
Additional information:
Cash Sales: 1,80,000
Cash Cost of manufacturing: 30,000
Insurance premium paid in cash: 90,000
How would you account for insurance cost in the
books of the company if the accounting period
is ending on 31
st
December, 2006

Profit and loss account of A Ltd. for the year
ended 31
st
December, 2006



Sales 1,80,000
Cost of production (30,000)
Insurance cost 90,000
Less: Prepaid
Insurance (60,000)

(30,000)
Net income 1,20,000
Balance sheet of A Ltd. as on 31
st

December, 2006
Equities Assets
Owners
equity (Net
income)
1,20,000 Prepaid insurance 60,000
Cash
(1,80,000-30,000-90,000)
60,000
Total 1,20,000 Total

1,20,000
Pre-collected Revenues
Bennett, Coleman & Co. Ltd has received Rs.
1,20,000 as total subscription money in the
year 2008 out of which, Rs. 20,000 was
received for subscription of The Economic
Times for the year 2009.
How would subscription money be accounted
if the cash publishing cost is 70,000??
Financial year ends on 31
st
December 2008.

Accrued/uncollected revenues
X Ltd. (a real estate company) rented a
building to Y Ltd. at rent of Rs. 50,000 per
month. During the year 2009, X Ltd. did not
receive rent for the months of November and
December, 2009. Total rent received in cash
during the year was Rs. 5,00,000 and costs
incurred as commissions and salaries to
administration staff was Rs. 3,00,000.
Quick check???
W Ltd. purchased a two years fire insurance
policy, paying premium RS. 30,000 in October
2005. The policy was dated October 2005, and
expired on September 30, 2007.
With respect to this policy, what should be the
expense applicable to the years 2005, 2006,
2007, and what is the value of the asset
(prepaid insurance) as of December 31
st
, 2005,
2006, 2007.
Quick check??
XYZ had following transactions in the month of June.
Using matching concept, decide which of these
transactions represented expenses for June:
Received orders for goods with price totalling
$25000; goods to be delivered in July
Paid office staff $4500 for the work performed in
April
Products in inventory costing $1700 were found
obsolete
Paid for radio advertising for the month of August
Sold goods costing $25000 for $30000
Purchased additional inventory for $27000