Question

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

• A. Profit or loss is determined by matching revenues and expenses according to the matching principle
• B. Only revenue expenses together with losses should be taken into account
• C. Only revenue receipts i.e. sale proceeds and other incomes should be entered
• D. All of the above

Answer 1

The correct option is D All of the above

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.