luckpandaProfit and Loss Account Format: T-Format, Vertical and Schedule III With Example
The profit and loss account format for proprietors and companies: a blank T-format, a worked example, the vertical multi-step layout and Schedule III.
On this page
- What is the format of a profit and loss account?
- Blank format
- Profit and loss account format with example
- What does the vertical (multi-step) format look like?
- What is the Schedule III format for companies?
- Which items are direct and which are indirect?
- Which year-end adjustments change the result?
- How do you prepare one step by step?
TL;DR: A profit and loss account format starts from gross profit (brought down from the trading account), debits indirect expenses such as office rent, salaries, advertising, interest and depreciation, credits indirect incomes such as commission and discount received, and ends at net profit. Proprietors and firms use the two-sided T-format; companies must use the vertical Statement of Profit and Loss in Schedule III of the Companies Act, 2013. Below, one set of figures is shown in all three layouts.
The profit and loss account format is a two-sided account headed "Profit and Loss Account for the year ended 31 March 20XX": gross profit and indirect incomes go on the credit side, indirect expenses and losses go on the debit side, and the balancing figure is net profit (debit side) or net loss (credit side). Net profit is then added to the owner's capital in the balance sheet (ICAI Board of Studies, Foundation Paper 1, Chapter 7). It is prepared after the trading account, which works out gross profit, and before the balance sheet.
What is the format of a profit and loss account?
The profit and loss account format for a sole proprietor or partnership firm is a T-account. Expenses are grouped the way the ICAI study material groups them: office and administration, selling and distribution, financial, and abnormal losses.
Blank format
Profit and Loss Account of [Business name] for the year ended 31 March 20XX
| Dr. Particulars | ₹ | Cr. Particulars | ₹ |
|---|---|---|---|
| To Gross Loss b/d (if any) | xxx | By Gross Profit b/d | xxx |
| Office and administration | Other income | ||
| To Salaries (office staff) | xxx | By Commission Received | xxx |
| To Rent, Rates and Taxes | xxx | By Discount Received | xxx |
| To Office Electricity and Telephone | xxx | By Interest Received | xxx |
| To Printing and Stationery | xxx | By Rent Received | xxx |
| To Audit Fees, Legal Charges | xxx | By Profit on Sale of Asset | xxx |
| To Repairs and Depreciation | xxx | By Net Loss (transferred to capital) | xxx |
| Selling and distribution | |||
| To Advertisement | xxx | ||
| To Carriage Outwards | xxx | ||
| To Bad Debts | xxx | ||
| To Selling Commission | xxx | ||
| Financial | |||
| To Interest on Loan | xxx | ||
| To Bank Charges | xxx | ||
| To Discount Allowed | xxx | ||
| Abnormal losses | |||
| To Loss by Fire / Loss on Sale of Asset | xxx | ||
| To Net Profit (transferred to capital) | xxx | ||
| Total | xxx | Total | xxx |
"b/d" means brought down from the trading account. Only one of Net Profit or Net Loss appears, whichever balances the account.
Profit and loss account format with example
Shree Ganesh Traders, a wholesale grocery firm, earned a gross profit of ₹3,85,000 on net sales of ₹12,70,000 for the year ended 31 March 2026 (the full trading account is in our trading account format guide). Its remaining ledger balances are:
- Office salaries ₹1,20,000; office rent ₹96,000; office electricity ₹12,000
- Advertisement ₹15,000; carriage outwards ₹8,000; bad debts ₹5,000
- Interest on bank loan ₹18,000; bank charges ₹2,000; depreciation on furniture ₹10,000
- Commission received ₹6,000; discount received ₹4,000; interest on fixed deposit ₹3,000
Profit and Loss Account of Shree Ganesh Traders for the year ended 31 March 2026
| Dr. Particulars | ₹ | Cr. Particulars | ₹ |
|---|---|---|---|
| To Salaries | 1,20,000 | By Gross Profit b/d | 3,85,000 |
| To Rent | 96,000 | By Commission Received | 6,000 |
| To Electricity | 12,000 | By Discount Received | 4,000 |
| To Advertisement | 15,000 | By Interest on FD | 3,000 |
| To Carriage Outwards | 8,000 | ||
| To Bad Debts | 5,000 | ||
| To Interest on Loan | 18,000 | ||
| To Bank Charges | 2,000 | ||
| To Depreciation on Furniture | 10,000 | ||
| To Net Profit (to Capital) | 1,12,000 | ||
| Total | 3,98,000 | Total | 3,98,000 |
Check: indirect expenses total ₹2,86,000 and other income ₹13,000, so net profit = 3,85,000 + 13,000 − 2,86,000 = ₹1,12,000. Net profit margin = 1,12,000 ÷ 12,70,000 = 8.82%.
What does the vertical (multi-step) format look like?
The vertical profit and loss format, also called a multi-step income statement, lists the same figures top to bottom and shows three subtotals: gross profit, operating profit and net profit. Lenders and investors read this layout faster because each margin sits on its own line.
| Particulars | ₹ | % of net sales |
|---|---|---|
| Net sales | 12,70,000 | 100.00% |
| Less: Cost of goods sold | 8,85,000 | 69.69% |
| Gross profit | 3,85,000 | 30.31% |
| Less: Administration (salaries 1,20,000, rent 96,000, electricity 12,000) | 2,28,000 | 17.95% |
| Less: Selling (advertisement 15,000, carriage outwards 8,000, bad debts 5,000) | 28,000 | 2.20% |
| Less: Depreciation | 10,000 | 0.79% |
| Operating profit | 1,19,000 | 9.37% |
| Add: Other income (commission, discount, interest) | 13,000 | 1.02% |
| Less: Finance costs (interest 18,000, bank charges 2,000) | 20,000 | 1.57% |
| Net profit | 1,12,000 | 8.82% |
A single-step statement skips the subtotals: total income minus total expenses equals net profit. It is shorter but hides whether a weak year came from pricing (gross margin) or overheads (operating margin).
What is the Schedule III format for companies?
Companies registered in India must present a Statement of Profit and Loss in the format of Part II of Schedule III of the Companies Act, 2013, not a T-account. It is a single vertical column with expenses classified by nature, a note number for each line, and a column for the previous year's figures (Schedule III Part II format, INFLIBNET e-PG Pathshala). Section 128 of the Act also requires companies to keep books on an accrual basis under the double entry system (Companies Act, 2013, section 128).
Here are the Shree Ganesh figures as they would appear if the business were a company (before tax):
| Line | Particulars | ₹ |
|---|---|---|
| I | Revenue from operations | 12,70,000 |
| II | Other income | 13,000 |
| III | Total income (I + II) | 12,83,000 |
| IV | Expenses | |
| Purchases of stock-in-trade (8,30,000 + carriage inwards 15,000 + freight 10,000) | 8,55,000 | |
| Changes in inventories of stock-in-trade (opening 1,20,000 − closing 1,50,000) | (30,000) | |
| Employee benefits expense (wages 60,000 + salaries 1,20,000) | 1,80,000 | |
| Finance costs (interest on loan) | 18,000 | |
| Depreciation and amortisation expense | 10,000 | |
| Other expenses (rent, electricity, advertisement, carriage outwards, bad debts, bank charges) | 1,38,000 | |
| Total expenses (IV) | 11,71,000 | |
| V | Profit before exceptional and extraordinary items and tax (III − IV) | 1,12,000 |
The result is the same ₹1,12,000; only the grouping differs. Schedule III has no "gross profit" line, so analysts compute it from revenue, purchases and changes in inventories. A company then deducts current and deferred tax to reach profit for the period.
Which items are direct and which are indirect?
The trading account takes direct items (cost of buying goods and getting them ready for sale); the profit and loss account takes indirect items (cost of running and financing the business). The pairs below cause most misclassifications:
| Item | Trading account | Profit and loss account |
|---|---|---|
| Carriage | Carriage inwards | Carriage outwards |
| Staff cost | Wages of workers handling goods | Salaries of office and sales staff |
| Power and lighting | Factory power and lighting | Office lighting |
| Rent | Factory or warehouse rent (in manufacturing accounts) | Office and showroom rent |
| Discount | Trade discount (deducted from the invoice, never recorded) | Cash discount allowed (debit) or received (credit) |
| Packing | Packing that makes goods saleable | Packing for delivery or display |
Which year-end adjustments change the result?
Year-end adjustments correct the ledger balances so the profit and loss account shows the expenses and incomes that belong to the year (the accrual basis). The common ones and their effect:
- Outstanding expenses (e.g. March salary ₹10,000 unpaid): add to the expense; show as a liability.
- Prepaid expenses (e.g. insurance paid for April to June): deduct from the expense; show as an asset.
- Accrued income (e.g. interest earned, not received): add to the income; show as an asset.
- Income received in advance: deduct from the income; show as a liability.
- Depreciation on fixed assets: debit to profit and loss; deduct from the asset.
- Further bad debts and provision for doubtful debts (e.g. 5% of debtors): debit to profit and loss; deduct from debtors.
- Interest on capital (in partnership firms): debit; interest on drawings: credit.
Each adjustment is entered twice: once in the profit and loss account and once in the balance sheet, which is why the balance sheet still tallies after the adjustments.
How do you prepare one step by step?
- Tally the trial balance. Debit and credit totals must match; see the trial balance format.
- Prepare the trading account and carry down gross profit or gross loss.
- Classify every remaining nominal balance as an indirect expense (debit) or indirect income (credit), using the golden rules of accounting.
- Apply the adjustments listed above.
- Balance the account. Excess of credits is net profit; excess of debits is net loss.
- Transfer the result to capital (proprietors) or partners' capital accounts, and pass the closing entry: Profit and Loss A/c Dr, To Capital A/c.
Software that posts every invoice, bill and payment to a double-entry ledger, such as the LuckPanda ledger, builds steps 1 to 3 from the books automatically; you still decide the year-end adjustments.
Questions
What is the difference between a profit and loss account and a profit and loss statement?
They report the same result. "Account" usually means the two-sided T-format used by proprietors and in Indian syllabi; "statement" means the vertical format used by companies and in the US (where it is called an income statement).
Is depreciation shown in the profit and loss account?
Yes. Depreciation is a non-cash expense debited to the profit and loss account and deducted from the asset's value in the balance sheet.
Where does income tax go in a proprietor's profit and loss account?
A proprietor's income tax is personal, so it is treated as drawings, not as a business expense. Companies show tax expense in the Statement of Profit and Loss after profit before tax.
Can net profit be higher than gross profit?
Yes, when other income (interest, commission, rent received, profit on sale of an asset) exceeds indirect expenses. It is unusual for a trading business.
Is the profit and loss account a nominal account?
Yes. Every balance transferred to it is a nominal account (expense, loss, income or gain), and it is closed each year by transferring the net result to capital.