The following are the items relating to debit side of the profit and loss account:

• Office and administrative expenses:
  All the expenses, which are incurred in the process of operating the business, are known as office and administrative expenses. These expenses are incurred in managing the whole activities of the business. It includes the expenses like office salaries, printing and stationary expenses, legal expenses, telephone and electricity charges, office rent, audit fees, insurance premium etc.
  
  
• Selling and distributing expenses:
  Expenses, which are incurred in the process of selling and distributing the goods, are known as selling and distributing expenses. These expenses are incurred in maintaining and promoting sales. It includes the expenses like warehouse expenses, carriage on sales, packing expenses, commission on sales, advertising, travelling expenses etc.
  
  
• Financial expenses:
  The expenses, which are incurred for fulfilling the financial need of the business, are known as financial expenses. These expenses are incurred for steady supply of financial necessary for the business. These expenses include interest on loan, interest on bank overdraft, bank charges etc.
  
  
• Depreciation and repair & maintenance:
  Depreciation is the permanent decrease in the value of fixed assets due to their continuous use. It is a loss to the business. The repair & maintenance expenses are incurred to maintain the working condition of the fixed assets.
  
  
• Other expenses and losses:
  Other expenses and losses like bad debts, provision for bad debts, loss on sale of fixed assets, loss of goods in transit etc. are included on debit side of the profit and loss account.

The following are the items relating to credit side of profit and loss account:

• Indirect incomes:
  Profit and loss account contains all the indirect incomes in its credit side. Incomes from commission and discount are the examples of indirect incomes.
  
  
• Other incomes and profits:
  Profit and loss account contains all other incomes like interest on investment, interest on deposit, dividend received, bad debts recovered etc. It also includes profit on sale of fixed assets, profit on sale of investment etc.

Profit and loss account is prepared by following certain procedures. It is prepared in the form of the ledger and hence it contains two sides: Debit and Credit. While placing the items in the profit and loss account, expenses and losses are debited and incomes and profits are credited. The procedures of preparing the profit and loss account can be explained as follows: -

1. Transferring gross profit or gross loss:
   The amount of gross profit is transferred from trading account in credit side of the profit and loss account with the words “By gross profit b/d”. If there is gross loss in the trading account, it is transferred in its debit side with the words “To gross loss b/d” under particulars column.
   
   
2. Placing expenses and losses in debit side:
   Items relating to office and administrative expenses, selling and distributing expenses, financial expenses, depreciation and repairs and maintenance expenses and other expenses and losses are debited in the profit and loss account.
   
   
3. Placing incomes and profits in credit side:
   Items relating to indirect incomes and other incomes and profits are credited in the profit and loss account.
   
   
4. Balancing and closing the profit and loss account:
   Profit and loss account is prepared to know the amount of net profit or net loss. It is determined by balancing the profit and loss account. The following procedures are followed for balancing and closing the profit and loss account: -
   
   • Find out the heavier side
   • Put the difference amount in lighter side to make total of both sides equal
   • Write the words “To Net profit c/d” if credit total exceeds debit total or “By Net loss c/d” if debit total exceeds credit total against the difference amount under particulars column.
   • Draw double parallel lines after the total amount of both sides to close the accounts.

All the expenses, which are incurred in the process of operating the business, are known as office and administrative expenses. These expenses are incurred in managing the whole activities of the business. It includes the expenses like office salaries, telephone and electricity charges, office rent, audit fees, insurance premium etc.

Expenses, which are incurred in the process of selling and distributing the goods, are known as selling and distributing expenses. These expenses are incurred in maintaining and promoting sales.

The expenses, which are incurred for fulfilling the financial need of the business, are known as financial expenses. These expenses are incurred for the steady supply of financial necessary for the business.