Profit & Loss Account is prepared for a period of one year by following __________.

Consistency concept

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Conservatism concept

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Accounting period concept

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Cost concept

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Solution

The correct option is C Accounting period concept
As the going concern concept defines that the life of the business is assumed to be indefinite, the accounting records must be kept for a specific period of time, i.e. accounting period. This may generally be one year.
Though in the accounting, the term accounting period is not defined but as business is related to various laws such as income tax, excise etc., the period should be defined, taking into consideration the various applicable laws.

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Similar questions

State whether the following statement are true or false.

1. Final Accounts are prepared on the basis of Trial Balance.
2. Trading Account is a part of Profit & Loss Account.
3. Profit Loss Account is prepared to find out Gross Profit or Gross Loss.
4. Gross Profit or Gross Loss is transferred to Balance Sheet.
5. An amount of net profit is added to the capital.
6. All indirect expenses are debited to trading account.
7. Balance Sheet is a statement and not an account.
8. Capital account is a personal account.
9. Amount of prepaid expenses appears on assets side.
10. Bank Overdraft is a liability of business concern.

Q. From the following Trial Balance extracted from the books of Sh. Pawan Kumar, prepare a Trading Account, Profit & Loss Account for the year ended 31st March, 2014 and a Balance Sheet as at that date :

Dr. Balances	(₹)	Cr. Balances	(₹)
Drawings	1,20,000	Capital	16,00,000
Plant and Machinery	12,00,000	Creditors	2,60,000
Horses and Carts	2,60,000	Sales	8,20,000
Debtors	3,40,000	Bills Payable	2,21,200
Purchases	2,00,000	Interest on Ram's Loan	1,800
Wages	80,000	Rent Received	12,000
Cash at Bank	2,60,000
Salaries	80,000
Repairs	5,000
Stock (1-4-2013)	7,000
Stock (31-3-2014)	92,000
Rent	45,000
Manufacturing expenses	15,000
Bad-Debts	50,000
Carriage	15,000
Income Tax	20,000
Life Insurance Premium	30,000
Loan to Ram at 12% p.a.	20,000
Insurance	12,000
Insurance Prepaid	1,000
	29,15,000		29,15,000

Adjustments:-
1. Plant and Machinery includes a new machinery purchased on 1st October, 2013 for ₹ 2,00,000.
2. Depreciate Plant and Machinery by 10% p.a. and Horses and Carts by 20% p.a.
3. Salaries for the month of February and March 2014 are outstanding.
4. Goods worth ₹ 15,000 were sold and dispatched on 27th March but no entry was passed to this effect.
5. Make a provision for Doubtful Debts at 5% on Debtors.

Q. Prepare a Trading and Profit & Loss account for the year ending March 31, 2018, from the balances extracted of M/s Rahul Sons. Also prepare a balance sheet as at that date.

Debit Balances	₹	Credit Balances	₹
Stock	50,000	Sales	1,80,000
Wages	3,000	Purchase return	2,000
Salary	8,000	Discount received	500
Purchases	1,75,000	Provision for bad debts	2,500
Sales Return	3,000	Capital	2,90,000
S. Debtors	82,000	Bills Payable	22,000
Discount allowed	1,000	Commission received	4,000
Insurance	3,200	Rent	6,000
Rent, rates and taxes	4,300	Loan	34,800
Fixtures and fittings	20,000	Output CGST	15,000
Trade Expenses	1,500	Output SGST	15,000
Bad debts	2,000
Drawings	32,000
Repair and renewals	1,600
Travelling expenses	4,200
Postage	500
Legal fees	500
Bills Receivable	50,000
Building	1,10,000
Input CGST	10,000
Input SGST	10,000
	5,71,800		5,71,800

Adjustments :-
(i) Commission received in advance ₹ 1,000.
(ii) Rent receivable ₹ 2,000, subject to levy of CGST and SGST @ 9% each.
(iii) Salary outstanding ₹ 1,000 and insurance prepaid ₹ 800.
(iv) Further Bad-debts ₹ 1,000 and provision for Bad-debts @ 5% on debtors and provision for discount on debtors @ 2%.
(v) Closing Stock ₹ 32,000.
(vi) Depreciation on Building @ 6% p.a.

Q. _______ is the part of income statement, which is prepared to ascertain the profit/ loss for a given accounting period.

Q. Write one Word / Term / Phrase for each of the following statement.

An Account, which is prepared by ‘Not for Profit’ concern, instead of Profit and Loss Account.

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