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Profit & Loss Statement/Account – Why & How it is prepared?

Updated on :  

08 min read.

Every business wants to know the incomes earned and expenses incurred during a particular period, usually at the end of the year. 

Profit & Loss Statement/Account shows the profits/losses earned/incurred by a business for a month or a year. Companies use Profit & Loss Statement and others use “T Account” for these below mentioned reasons. Profit & Loss Statement/Account is prepared for two main reasons.

  1. To know the profits/losses earned/incurred by a business,
  2. Statutory requirements (Companies Act, Partnership Act or any other law)

Traditionally, there were two steps to know the profit/loss. It meant, the preparation of :

  1. Trading Account
  2. Profit & Loss Account

The trading account reflects the gross profit or loss of the business. Profit & Loss Account shows the net profit or loss earned by the company.

Let us take you through different formats of the profit and loss account: 

  1. Format for Sole Traders & Partnership Firms
  2. Format of P&L Account for Companies

Format for Sole Traders & Partnership Firms

No specific format of Profit & Loss Account is given for the sole traders and partnership firms. They can prepare the P&L Account in any form. However, it should reflect the gross profit & net profit separately. 

Usually, these entities prefer “T shaped form” for preparing P&L account. 

  • T-shape Form T-shape form P&L account has two sides – Debit & Credit. Trading account is prepared first followed by Profit & Loss Statement. 

Trading and Profit & Loss Account






To Opening Stock


By Sales


To Purchases


By Closing Stock


To Direct Expenses



To Gross Profit






To Operating Expenses


By Gross Profit


To Operating Profit






To Non-operating expenses


By Operating Profit


To Exceptional Items


By Other Income


To Finance Cost



To Depreciation



To Net Profit Before Tax






Format of P&L Account for Companies

Companies have to prepare the Profit & Loss Account as per Schedule III of Companies Act, 2013. 

Following is the format mentioned in Schedule IIISTATEMENT OF PROFIT & LOSS 

Name of the Company…………. 

Statement of Profit and Loss for the period ended…………….  


Note No.

Figures for the current reporting period

Figures for the previous reporting period



a) Revenue From operations


b) Other Income


Total Income




a) Cost of materials consumed

b) Purchases of Stock-in-Trade


c)   Changes in inventories of finished goods, Stock-in -Trade and work-in-progress


d) Employee benefits expense


e) Finance costs


f)    Depreciation and amortisation expenses


g) Other expenses


Total Expenses


Profit/(loss) before exceptional items and tax


Exceptional Items


Profit/ (loss) before tax


Tax Expense:


Current tax

Deferred tax

Profit (Loss) for the period from continuing operations


Profit/(loss) from discontinued operations


Tax expenses of discontinued operations


Profit/(loss) from Discontinued operations (after tax)


Profit/(loss) for the period


Other Comprehensive Income


A. (i) Items that will not be reclassified to profit or loss

(ii) Income tax relating to items that will not be reclassified  to profit or loss

B. (i) Items that will be reclassified to profit or loss

(ii)  income tax relating to items that will be reclassified to profit or loss

Total Comprehensive Income for the period Comprising Profit (Loss) and   other comprehensive income for the period )


Earnings per equity share (for continuing operation):


(1) Basic

(2) Diluted

Earnings per equity share (for discontinued operation):


(1) Basic

(2) Diluted

Earning per equity share (for discontinued & continuing operation)




(2) Diluted


Details to be disclosed in the notes

a. Amount of “Revenue from operations” will be divided in –

i. Sale of products (including excise duty)

ii. Sale of services

iii. Other operating revenues

b. Finance cost will be distributed in –

i. Interest

ii. Dividend on redeemable preference shares

iii. Exchange Differences regarded as an adjustment to borrowing costs, and

iv. Other borrowing costs (if any)

c. Other Income will be distributed in –

i. Interest Income,

ii. Dividend Income, and

iii. Other non-operating income

d. Other Comprehensive Income shall be classified into –

    i.Items that will  not be reclassified to profit or loss

1. Changes in revaluation surplus

2. Remeasurements of the defined benefit plans

3. Equity Instruments through Other Comprehensive Income

4. Fair value changes relating to own credit risk of financial liabilities designated at fair value through profit or loss

Share of other comprehensive income in associates and joint ventures, to the extent not to be classified into profit or loss, and


ii. Items that will be reclassified to profit or loss

  1. Exchange differences in translating the financial statements of a foreign operation;
  2. Debt instruments through Other Comprehensive Income;
  3. The effective portion of gains and loss on hedging instruments in a cash flow hedge;
  4. Share of other comprehensive income in Associates and Joint Ventures, to the extent to be classified into profit or loss; and
  5. Others

e. Employees benefit expense

i. Salaries and wages,

ii. Contribution to provident and other funds,

iii. Share-based payments to employees

iv.staff welfare expenses

f. Depreciation and amortisation expense,

 g. Interest Income, 

h. Interest Expense, 

i. Dividend Income, 

j. Net gain or loss on sale of investments,

 k. Net gain or loss on foreign currency transaction and translation (other than considered as finance cost), 

l. Payment to the auditor as :

i. Auditor

ii. For taxation matters

iii. For company law matters

iv. For other services

v. For reimbursement of expenses

m. Amount of expenses incurred on corporate social responsibility activities, n. Details of items of exceptional nature   o. Any other expense or income which exceeds higher of Rs. 10,00,000 or 1% of revenue from operations

Form 23ACA – E-Form for submitting Profit & Loss Account with Registrar

For submitting Profit & Loss Account with the Registrar, a company has to file e-Form 23ACA. 

With the form, it has to attach an audited copy of Profit & Loss Account. The e-form has to be digitally signed by a CA or CMA or CS, who is in whole time practise, certifying that the information entered in 23ACA is correct and audited Profit & Loss Account is attached with the form.

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